WIKIFX REPORT: Saudi oil prices to Asia raised to record high following OPEC quota hike

OPECs most prolific oil producer and exporter, Saudi Arabia, has raised the official selling price of its crude oil to new highs for September loadings.

Saudi Arabia raised the price of all of its crude grades to its prized market, Asia, for September. Saudi Arabia raised the September price of Arab Light to the Far East by $0.50 per barrel to $9.80 over the Oman/Dubai benchmark.

The pricing adjustment paints a more complete picture of the direction the market could be headed. Yesterday, OPEC raised its production quota, indicating that there was an increased need for production beyond its August target (which was already 648,000 bpd over Julys—a move that typically signals that the group sees a greater call on OPEC oil.

US crude price chart

Saudi Arabia also raised the price of crude oil heading to the United States, North West Europe, and the Mediterranean. Other OPEC producers often reset their prices too, following Saudis pricing action. It is also largely seen as a bellwether for how Saudi Arabia views future oil demand.

Brent oil price chart

The announcement came a day after OPEC+ agreed to raise their collective production target for September by a meagre 100,000 barrels per day, the lowest increase in months by the oil cartel.

Prices back to pre-war levels

“Crude futures were ticking higher early Thursday in Asia after a somewhat unexpected 4% slump at Wednesdays settle took prices back to pre-Ukraine invasion levels for the first time,” said analysts at Singapore-based energy consultancy Vanda Insights.

“The main bearish signal for crude appeared to come from the Energy Information Administrations (EIA) data showing an unexpected and sizeable build in US commercial crude inventories and a plunge in gasoline demand for the week ended 29 July,” they added.

Insult to President Joe Biden

The Opec decision which was to set raise oil output by a tiny 100,000 barrels per day (bpd) is being described by analysts as an insult to US President Joe Biden, after his trip to Saudi Arabia last month to persuade the organisation's leader to pump more to help the US and global economy.

“By our calculations, a 100,000 b/d quota hike distributed among the 23 OPEC+countries pro rata will effectively mean only a 34,000 b/d production rise – about 26,000 b/d for Saudi Arabia and 8,000 b/d for the UAE,” S&P Global Commodity Insights London-based analyst Herman Wang tweeted on Wednesday.

“Every other member is tapped out of capacity,” he added.

A clouded Chinese recovery

“Higher prices and a deteriorating economic environment have started to take their toll on oil demand, but strong power generation use and a recovery in China are providing a partial offset,” the International Energy Agency said in its July Oil Market Report.

“Global oil demand growth has been marginally reduced to 1.7 mb/d in 2022, reaching 99.2 mb/d,” the watchdog added.

China‘s Caixin manufacturing Purchasing Managers’ Index hit a 13-month high in June “(pointing) to a jump in output as (Corona) virus restrictions were lifted and supply chain conditions improved,” Capital Economics senior China economist Julian Evans-Pritchard told clients on 1 July.

“But it still points to subdued demand growth and doesnt alter our view that economic activity (in the top oil importer) will remain below trend in the coming months.”

Benchmark crude futures plunged over $20 per barrel in June, as a weakening economic outlook drove a broad market sell-off.