Saudi oil challenged in Asia by coronavirus and cheaper alternatives

By Sharon cho on 8/6/2021

(Bloomberg) – Saudi Arabia’s decision to increase the cost of its oil in Asia could backfire, as an outbreak of the delta virus variant in China dampens demand, while the United States and the Russia offer alternatives at more competitive prices.

Saudi Aramco has increased its medium and heavy Arab grades by 20 to 30 cents a barrel to the highest in at least four months for September sales in the region. While this is less than the difference between Dubai’s structure and Aramco’s benchmarks in its prices, demand for these medium and heavy acid barrels could suffer as China battles an outbreak of the highly infectious strain Covid- 19.

American varieties such as Mars – of comparable average quality – are offered at lower prices than last month, while the Russian Urals are also getting cheaper, according to traders who buy and sell these barrels. Dubai’s oil premium for Brent stood at $ 3.51 a barrel on Friday, down from $ 4.36 a month earlier.

This could cause Asian refiners to look to purchase smaller amounts of contract volumes from Aramco. The nominations were expected on Thursday and Aramco will likely notify buyers of their allocations next week. He could also see the spot market remain sluggish after a rather lackluster July. Cargoes of some Middle Eastern medium and heavy crudes have been reduced to discounts from their official selling prices.

The market is also starting to see quick cargoes offered as the Organization of the Petroleum Exporting Countries and its allies restore more production.

China National Petroleum Corp. predicts that the latest wave of Covid-19 could wipe out 5% of near-term oil demand in the country, the world’s largest importer of crude. Local governments have rushed to shut down some cities and traffic is already lower in places affected by the virus.

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