Dirtier, more sludgy oil in Asia is getting more expensive as Saudi Arabia’s voluntary oil cuts are again extended, flipping on its head the higher prices that usually come with lighter crude oils.
According to reports, the value of more sulphurous and dense types of crude, known as “medium-sour” crudes, has surged past prices of lighter oils, often considered better quality, such as Abu Dhabi’s Murban oil.
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The shift is a significant reversal of usual price patterns and can be seen in both physical and futures markets.
Saudi Arabia said at the beginning of this month that it would extend its oil output cuts of one million barrels per day (bpd) into August, adding that cuts could be extended further still beyond this. In June, the country’s government announced additional cuts for July in a bid to stabilise falling oil prices.
The latest extension comes as Opec+, which groups member states of the Organization of the Petroleum Exporting Countries (OPEC) with other global oil exporters, including Russia, continues with widespread crude output cuts, which began earlier this year.
In April, investment bank Goldman Sachs said that Opec+ production cuts could result in a significantly larger deficit in the market, suggesting that this could drive a surge in prices to $100 per barrel (/bbl) by April 2024, as well as raise Opec’s pricing power.
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By GlobalDataThe results of global cuts are now being felt strongly, with Brent crude prices exceeding $80/bbl) last week for the first time since May. In April too prices were high, with Brent trading at approximately $85/bbl at the beginning of the month. Goldman Sachs at the time raised its price forecast for Brent for December 2023 by $5, from $90 to $95/bbl.
Refinery outages in Japan and a previous buying spree of lighter crude by the US are also predicted to impact purchasing patterns of high-quality grades such as Murban, according to traders.
