Saudi Arabia, the leading global oil exporter, has significantly reduced its oil prices for Asian markets, nearing their lowest point in four years. This decision aligns with OPEC+’s strategy to boost oil production rapidly.
Saudi Aramco, the state oil company, decreased the May official selling price for its Arab Light crude by $2.30, setting it at $1.20 per barrel above the Oman and Dubai averages. This marks the largest price reduction in over two years and follows a similar decrease the previous month.
OPEC+ nations have agreed to increase oil output by 411,000 barrels per day in May, tripling the anticipated rise, which accounts for about 0.4% of global supply. This move has sparked concerns about possible market share battles akin to those in 2015 and 2016.
Callum Macpherson from Investec notes that while this strategy may evoke past market share tactics, it also responds to countries like Iraq and Kazakhstan, which often exceed their production quotas.
Saudi Arabia has traditionally supported production controls to stabilize the market, needing oil prices around $90 per barrel for budgetary reasons. However, the recent OPEC+ decision marks a significant shift from these policies.
In addition to the Arab Light crude, Aramco has also reduced prices for other grades sold to Asia by $2.30 per barrel. The announcement of increased production, coupled with global trade tensions, caused oil prices to drop nearly 11% in early April.
Prior to this, analysts had anticipated a cut in Arab Light prices for Asia by $1.80 to $2.00, reflecting the sharp declines seen in March. The premium for Dubai crude fell to $1.38 per barrel in March from $3.33 in February, partly due to increased Russian oil supply returning to Asia after earlier disruptions from U.S. sanctions.