Has the oil price hit bottom?

Saudi Arabia has raised prices in Asia for three months in a row.

On May 6, according to media reports, Saudi Arabia30freespinsnodepositrequiredkeepwhatyouwinSaudi Aramco, the national oil company, announced over the weekend that it had raised the price of Arab light crude sold to Asian customers for the third month in a row. Specifically, Saudi Aramco raised the official price of the crude oil by 90 cents a barrel in June, making it 2% higher than the regional benchmark price (Oman-Dubai benchmark price).30freespinsnodepositrequiredkeepwhatyouwin.90 US dollars, 60 cents more than the market expected. In addition, Saudi Arabia has raised the price of other light and heavy crude oil since May.

In terms of the supply and demand structure, the upward momentum of oil prices is limited, and although the Israeli-Hamas war triggered attacks by Houthi militants in Yemen on merchant ships passing through the Red Sea, affecting crude oil supplies, both Israel and Iran exercised restraint in the conflict last month, indicating that the risk of an all-out war has been reduced. Large supplies of crude oil from the US and other OPEC countries are also curbing the rise in oil prices.

The change in oil prices also reflects the market's consideration of geopolitical risks. After Israel's invasion of Gaza in October, the price of Brent crude, the international benchmark, rose above $92 a barrel at one point, but mostly remained below $90. As of press time, cloth oil was at 83.63 US dollars per barrel.

Analyst Garfield Reynolds pointed out that Saudi Arabia intends to control its own exports to manage supplies in the global crude oil market to support global oil prices. Saudi Arabia is doing so against the backdrop of easing tensions in the Middle East, which they hope to keep oil prices stable by controlling crude oil supplies.

He also said that despite Saudi Arabia's efforts to raise oil prices, there was a significant drop in crude oil prices last week. The decline was driven in part by optimism brought about by a surge in US crude stocks and easing tensions in the Middle East. But oil prices may be looking for a new point of stability rather than continuing to fall.

For example, if Israel and Hamas can reach a cease-fire in the latest round of talks in Cairo, despite the uncertainty, crude oil prices could fall further rapidly in the short term. In this case, however, Saudi Arabia and other oil producers are likely to continue to reduce oil supplies to support oil prices.

OPEC+ may maintain production reduction measures next month

However, Mike Rothman, founder of analyst firm Cornerstone Analytics, told the media that Saudi Arabia's increase in the price of crude oil to Asian customers is more based on the adjustment of the refining value of crude oil and belongs to the normal range of price adjustment.

The OPEC+, led by Saudi Arabia and Russia, will meet on June 1st. The group has been implementing a series of voluntary production cuts since the end of 2022, which are scheduled to expire at the end of June. OPEC+ will decide at the meeting whether to extend the voluntary reduction of 2.2 million barrels a day beyond June.

The media reported last week that OPEC+ may maintain production cuts if oil demand fails to increase. It is widely expected that the production reduction policy may be extended until the end of this year.

Rothman pointed out that the ideal price range set by Saudi Arabia for cloth oil is about $102 a barrel on average:

OPEC+ 's goal is to reduce inventory levels through further production cuts until oil prices return to favourable levels.

Saudi crude oil exports fell 17.8 per cent in the fourth quarter of 2023 due to OPEC+ production restrictions.

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