Oil Gains as Saudi Arabia Raised Official Selling Price
Oil prices have begun a new trading week with gains of roughly 2.5%, sparked by Saudi Arabia’s raising of official selling prices to Asia and the US for January, Commerzbank said in a Monday note.
Brent is trading up at $71.5 per barrel and West Texas Intermediate has climbed to $68/barrel, after having come under pressure in late Friday and chalking up a sixth consecutive weekly loss in the longest losing streak in three years.
Saudi Arabia will be charging $3.30/barrel for oil deliveries to Asia in January on top of the Oman/Dubai benchmark, which represents the highest premium since the start of the pandemic in February 2020, Commerzbank said.
Oil deliveries to the US will be priced at $2.15 on top of ASCI, which represents the highest premium since March 2020, the bank added.
The higher premiums can be taken as signs of robust demand, supporting the recent decision by the Organization of Petroleum Exporting Countries and its allies to continue with its planned production increase in January, according to Commerzbank.
The bank also noted that in the summer, Saudi had already raised its OSPs for Asia despite concerns about demand, and had been forced to backpedal in the autumn.
Crude oil prices saw a sharp decline at the end of last week on the threat of weakening demand from new restrictions due to the new coronavirus variant, Australia’s ANZ Bank said in a note.
Border restrictions placed on countries where the variant has appeared come ahead of the year-end holiday period, when travel is usually at seasonal highs, the bank noted.
A wave of cuts to economic forecasts has also followed, weighing on sentiment, ANZ Bank said.
While the market was disappointed by OPEC’s announcement that it will proceed with its 400,000-barrel-per-day output hike as planned in January, it was also encouraged by the fact that the alliance kept the meeting live, according to ANZ Bank.
This means OPEC can still delay production increases in case demand weakens due to renewed COVID-10 outbreaks.
Concerns have also increased over Iranian oil hitting the market as the US and Iran begin talks on the nuclear deal, the bank said. However, the US refuted claims that a deal was close and said Iran was not serious about reviving the deal.
European gas prices also dropped amid signs of rising supply, ANZ Bank said. Gas flows from Russia stabilized, easing concerns over unpredictable supplies.
US LNG exports also increased as producers scrambled to take advantage of strong prices, and output could also rise as some Qatar operations end maintenance, the bank said.
Forecasts of milder temperatures across Europe have also eased concerns of strong heating demand. Dutch front month futures fell 3.5% on Friday to 91.49 euros per megawatt-hour, according to ANZ Bank.
North Asian LNG prices weakened amid a lull in activity from Asian consumers, the bank said. Traders will be nervous as Shell’s Prelude LNG export plant in Australia has stopped loading cargoes following an issue that tripped power at the facility, ANZ Bank noted. # Oil Gains as Saudi Arabia Raised Official Selling Price
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