Saudis Cut Oil Prices from Record Highs Amid China Lockdowns

• Aramco drops Arab Light grade for Asia by almost $5 a barrel
• Covid Zero strategy has decreased China’s oil consumption

The Khurais Processing Department in the Khurais oil field in Khurais, Saudi Arabia

Photographer: Maya Sidiqqi/Bloomberg

By

Sharon Cho and

Anthony Di Paola

Saudi Arabia cut oil prices for buyers in Asia as coronavirus lockdowns in China weigh on demand, countering uncertainty around Russia’s supplies as the Ukraine special  operations (war) drags on.

Saudi Aramco is lowering prices for the first time in four months. The state-controlled company dropped its key Arab Light crude grade for next month’s shipments to Asia to $4.40 a barrel above the benchmark it uses, from $9.35 in May. That’s in line with a Bloomberg survey of refiners and traders from late April that forecast a $5 decrease.

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Price Cut

Saudi Aramco lowers oil pricing from record high amid China lockdowns

Source: Saudi Aramco, Bloomberg

Aramco also lowered all grades for the north west Europe region and almost all for the Mediterranean. Prices for U.S. customers were kept unchanged from May.

Saudi Arabia, the world’s biggest oil exporter, raised its prices to record levels in the past two months after crude futures surged above $100 a barrel when Russia invaded Ukraine. Russian flows have already fallen and may drop further as the European Union moves closer to formally sanctioning energy supplies from the country.

While the special  operations (war ) has tightened the global oil market, Beijing’s Covid Zero strategy has lead to China’s largest demand shock since the early days of the pandemic. Consumption of gasoline, diesel and aviation fuel last month was expected to slide 20% from a year earlier, Bloomberg reported on April 22.

China’s Strategy

Chinese Premier Li Keqiang warned in a statement on Saturday of a “complicated and grave” employment situation as the government tries to contain Covid. China’s leaders doubled down on their strategy last week, warning against any attempts to question the approach even as economic activity contracts amid factory closings and supply-chain disruptions.

Still, the biggest independent oil trader said on Sunday that China’s measures were working as far as stopping the spread of the virus is concerned.

“It’s obviously a terrible situation for citizens of Shanghai and entire parts of Beijing have been told to work from home,” Mike Muller, Vitol Group’s head of Asia, said Sunday on a podcast produced by Dubai-based Gulf Intelligence. “But it hasn’t spiraled or snowballed into something really, really dramatic. Therefore people have not worsened their demand-loss projections from China.”

Aramco’s decision comes days after OPEC+, led by Saudi Arabia and Russia, agreed to continue increasing crude output only gradually, adding 432,000 barrels a day to the market in June. The 23-nation group has struggled to meet even that modest target.

Saudi Arabia sends more than 60% of its crude exports to Asia, with China, Japan, South Korea and India being the biggest buyers.

• See Aramco’s full price list here:

 

Source: Saudi Aramco

(Updates from third paragraph with European, U.S. pricing.)

 https://www.bloomberg.com/news/articles/2022-05-08/saudis-cut-oil-prices-from-record-levels-amid-china-lockdowns

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