Saudi Arabia adds fuel to the fire by hiking crude prices for Asian buyers

Saudi Arabia has hiked its crude oil prices for Asian buyers by $0.40 per barrel and cut those for European and US buyers by $0.20 and $0.10 per barrel, respectively, Reuters has reported, noting the increase is for May cargos, from the prices for April cargos.

This means the May shipments price for Arab Light—Saudi Arabia’s flagship grade—will cost Asian buyers $1.80 above the Oman/Dubai average, which is used as basis for price-setting. The Oman benchmark was trading above $63 a barrel at the time of writing, and the Dubai contract was above $64 a barrel.

The news is unlikely to be welcome by the two biggest buyers of Saudi crude, China and India, especially by India, which has been vocal in its opposition to OPEC’s price-raising efforts. The world’s third-largest consumer of oil has repeatedly called on the cartel to stop cutting production and let prices slide. Meanwhile, it has started looking for alternatives to Middle Eastern oil.

“We have asked companies to aggressively look for diversification. We cannot be held hostage to the arbitrary decision of Middle East producers. When they wanted to stabilize the market we stood by them,” India’s oil minister had said in early March.

As a result, Indian refiners will buy less oil from Saudi Arabia next month as they snap up supplies outside of the Middle East as part of diversification drive amid weakening domestic fuel demand on the resurgence of COVID-19. State-owned Indian Oil Corporation (IOC) and three other refiners have sought just 65 per cent of the monthly average of about 15 million barrels from Saudi Arabia for May 2021.  

India imports as much as 80 percent of the crude oil it consumes. Of this, some 60 percent comes from Middle Eastern producers. According to unnamed sources cited by Reuters, India could diversify into more US crude and crude from the world’s newest producer—Guyana.

Meanwhile, the government has asked refiners to review their contracts with Saudi Arabia and other Middle Eastern producers and use their collective bargaining power to get better terms. 

China, in the meantime, is gobbling up cheap Iranian oil despite US sanctions and may not need to continue buying at the rates it did last year, when crude had fallen at its lowest.

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