Doubts are surfacing over Saudi Arabia’s ability to dampen oil prices by increasing production. The kingdom has trimmed just $0.10 off its flagship Arab Light crude price for customers in Asia who buy more than half its crude exports, Saudi Aramco said on Tuesday, according to a Reuters report.
Aramco set the Arab Light price for August at Oman/Dubai plus $1.35 a barrel, down from $1.45 for July, and sliced 50 cents off Extra Light crude for Asia to Oman/Dubai plus $2.95 a barrel, the state oil company said.
Traders polled ahead of yesterday’s announcement by Saudi Aramco, the world’s biggest oil exporter, had hoped for at least a cut of $1 a barrel in the premium for Arab Light, as well as bigger discounts for the medium and heavy crudes.
The modest price reduction undercuts the announcements made by Saudi oil minister Ali al-Naimi following June’s failed OPEC meeting. Naimi had pleged to increase production and keep markets well-supplied in a bid to avoid further price increases as demand increases in the second half of the year.
If Saudi oil is going to make a serious dent in prices, it needs to compete with Asian and Russian grades of crude in supplying booming developing Asian markets such as India and China.
According to a Reuters poll on Friday, current official prices are simply not low enough to get Asian consumers to opt for a greater share of Saudi crude over current sources of supply. Buyers in Asia, who together consume up to 60 percent of all the crude Saudi exports, have a backlog of Russian ESPO crude to use up, limiting Saudi’s traction in shaping prices in the market.
The International Energy Agency has intervened in the oil markets by making 60 billion barrels available from the reserves of importer countries, with the US providing half the total. The IEA did so expecting the Saudi production increase to take over at the end of the month.Â
However, after seeing WTI crude fall to under $92 by 27 June, on news of the IEA’s decsision and weak economic data, oil prices are on the rise again this week. WTI at the time of writing is trading up $1.87 a barrel for the day at $97 with futures prices signalling further increases.
