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Vladimir Zernov
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Crude Oil

Oil Video 07.05.20.

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Saudi Aramco Raises June Prices For Asian Clients

Oil is gaining ground today as Saudi Aramco increased prices for Asian clients. Pricing for EU and U.S. customers were increased as well.

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Previously, Saudi Aramco offered material discounts as it tried to gain market share in a price war with Russia. However, the coronavirus pandemic dealt an additional blow to the oil market, and the leading oil producers have managed to agree to a production cut deal.

Now that these production cuts are implemented, Saudi Aramco is ready to increase prices. It should be noted that big oil producers sell their oil on contracts whose pricing may differ materially from the prevailing futures pricing.

Saudi Aramco’s move may signal that the worst is already behind, and that the negative pricing reached by the May 2020 contract will stay a historic curiosity and will not repeat again.

However, the current oil rally may face material obstacles as the spread between the front-month contract and longer-dated contracts gets tighter, signaling that the market is not very optimistic about a robust oil price recovery.

China Oil Imports Rebound In April

A surge in China Exports is providing a boost to global markets today. At the same time, a recent Reuters report suggested that China’s crude oil imports increased by 9.84 million barrels per day (bpd) in April.

This data signals increased appetite for crude oil as China’s economy starts to recover from the coronavirus crisis. It is highly likely that this increase in activity has allowed Saudi Aramco to boost prices as it saw improved demand.

The market is clearly extrapolating the data from China to the situation in the U.S. and EU which are reopening their economies. A faster-than-expected rebound in oil demand will eliminate the fears related to the availability of the oil storage and provide additional support for oil prices.

However, it’s too early to make the final call as the recent inventories reports showed continuous increase in oil inventory levels as demand is still much lower than available supply.

The U.S. production is trending down but the pace of this trend is currently not sufficient enough to prevent domestic inventories from further increases.

In the near term, the market will likely focus on data about the pace of the oil demand recovery while it will continue to keep a close eye on U.S. oil inventory levels.

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