Saudi Arabia’s state oil producer is set to hike prices across regions as the kingdom’s advantage in the market grows amid the Ukraine crisis, blowing past an April record.
Saudi Aramco on Monday hiked prices on shipments to Asia for May to $9.35 above the benchmark. The increase is $4.40 above the April level, itself a record.
The move came the week after OPEC+ decided to raise oil output gradually despite calls from the U.S. to step up output. U.S. prices, meanwhile, are set to increase $2.20 a barrel while they are set to increase by $3.00 a barrel in northern Europe.
While the increase is likely to have major geopolitical implications, it did not come out of nowhere, according to Giovanni Staunovo, a commodity analyst at UBS Group AG.
The official selling price (OSP) is set by a number of factors ranging from local market conditions to refinery yields, he said, so a major increase had been expected already.
“Another factor which might have also influenced the OSP price setting was the decision of the U.S. administration to tap its strategic oil reserves,” Staunovo told The Hill in an email.
“Higher OSP in Asia might increase demand for U.S. barrels, with more U.S. crude exports this might eventually prevent a build in U.S. commercial crude inventories. U.S. petroleum inventory data is closely tracked by financial market participants.”
“I think the Saudis are coming from a position of strength, given the cut in oil [imports] from Russia, given that many countries are sanctioning Russian oil … it presents an opportunity for the Saudis to raise prices, especially for some of their advantaged crudes that may be preferred by U.S. refiners,” added Patrick De Haan, head of petroleum analysis at GasBuddy.
De Haan added that while theoretically the spike could prompt U.S. refiners to look elsewhere, they are “a little bit of a captive audience for the Saudis, and so there’s not a whole lot of choices right now.”
On the other side of the Atlantic, the European Union is considering a ban on Russian oil imports, a step the U.S. took in March. As the E.U. imports far more Russian oil than the U.S., this would “absolutely” strengthen Saudi Arabia’s position, according to Kirsten Fontenrose, a nonresident senior fellow at the Atlantic Council’s Scowcroft Middle East Security Initiative.
“Any other oil that comes off the market is going to strengthen Saudi’s position,” Fortenrose told The Hill. “They’re really the only the only swing producer we have right now, on this kind of oil. America has been producing certain kinds, but not in the same way.”
Fortenrose added that the Saudis have both market-based and geopolitical incentives for the oil hike. Washington-Riyadh relations have frayed under the Biden administration, which has taken the Saudis to task on human rights violations.
The Saudis have “sent really clear signals for the last weeks, maybe even months about how they think they’re being mistreated in the relationship and how they think they keep receiving asks for America with no gifts,” Fortenrose said.
“If they were in a position right now where they thought, oh, no, we need to really ingratiate ourselves with the Biden administration or we’re looking for them to approve something large and so we better behave, that’d be one thing, but they’re not in that position right now,” she added. “They keep being asked for things.”