Saudi Arabia, the world’s largest oil exporter, is preparing to raise crude prices for Asian buyers in March, potentially reaching their highest levels in over a year. This surge in prices comes as demand from China and India rises, alongside U.S. sanctions that have disrupted Russian oil supply.
According to a Reuters survey, the official selling price (OSP) for Saudi Arabia’s flagship Arab Light crude may increase by $2 to $2.50 per barrel from February. One source expects a $3 per barrel rise across all grades. This suggests that the price for Arab Light could climb to at least $3.50 per barrel above the average of the Oman and Dubai benchmark prices, the highest since January 2024, up from February’s premium of $1.50 per barrel.
These price hikes generally align with changes in the market structure for the first- and third-month Dubai prices. In January, backwardation in the Dubai market widened by $2.05 per barrel compared to the previous month.
Backwardation is a market structure where prompt prices for a commodity are higher than future prices, indicating tight supply or increased demand.
However, some respondents indicated that future price gains could be constrained due to weak demand and thin margins among Asian refiners.
The U.S. administration under former President Joe Biden announced additional sanctions on Russian producers, tankers, and insurers on January 10, disrupting supply from the world’s second-largest oil producer and tightening ship availability. This led Chinese and Indian refiners to seek replacement cargoes, pushing spot premiums for Oman and Dubai to their highest levels since November 2022.
OPEC+, which controls about half of the world’s oil supply, decided in December to delay the start of oil output increases by three months until April and extend the full unwinding of production cuts until the end of 2026. The group will meet on February 3, amid calls by U.S. President Donald Trump to reduce oil prices. Saudi Arabia’s crude OSPs, usually released around the 5th of each month, set the trend for prices of other Middle Eastern oil producers like Iran, Kuwait, and Iraq, affecting about 9 million barrels per day of crude bound for Asia.
Saudi Aramco, the state-owned oil giant, sets its crude prices based on customer recommendations and after considering changes in the value of its oil over the past month, factoring in product yields and prices.
