Saudi Arabia reduced oil prices for Asian buyers as coronavirus lockdowns by China weigh on demand. This counters uncertainty about Russia’s supply as the Ukraine war drags along.
Saudi Aramco has lowered its prices for the first time in four months. Saudi Aramco, a state-controlled company, has dropped its Arab Light crude oil grade to Asia next month to $4.40 per barrel. This is a drop from $9.35 in May. This is in line with a Bloomberg survey that surveyed traders and refiners in late April, which predicted a $5 drop.
Aramco also reduced all grades for the region of northwest Europe and nearly all for the Mediterranean. The prices for US customers remained the same as in May.
After oil prices rose to $100 per barrel after Russia attacked Ukraine, Saudi Arabia has seen its crude rise to new records. Russian exports are already falling and could fall further as the EU closer to sanctioning energy supplies from Russia.
The war has tightened oil markets worldwide, but Beijing’s Covid Zero strategy is causing the largest demand shock in China since the beginning of the pandemic. Bloomberg reported that last month’s gasoline, diesel, and aviation fuel consumption was expected to fall 20% compared with a year ago, as Bloomberg reported on April 22.
In a statement released Saturday, Li Keqiang, the Chinese Premier, warned of a “complicated” and “grave” employment situation while the government attempts to control Covid. China’s leaders stepped up their strategy last week and warned against any attempt to question it, even as economic activity continues to decline amid closures of factories and disruptions in supply chains.
The world’s largest independent oil trader stated on Sunday that China’s efforts to stop the spread of the virus were successful.
“It’s a terrible situation, citizens of Shanghai and entire parts of Beijing have been told that they must work from home,” Mike Muller (Vitol Group’s Asia head) said Sunday on a podcast produced by Dubai-based Gulf Intelligence. It hasn’t escalated or snowballed into anything dramatic. People have not increased their demand-loss projections for China.”
Aramco’s decision came days after OPEC+ (led by Russia and Saudi Arabia) agreed to keep increasing crude oil production slowly, adding 432,000 barrels per day to the market in June. Even that modest goal has been difficult to achieve by the 23-nation group.
Saudi Arabia exports more than 60% of its crude oil to Asia. The largest buyers are China, Japan, and South Korea.