The Saudis have cut oil prices to record lows amid China’s Covid-19 lockdowns

Saudi Arabia has slashed oil prices for buyers in Asia as China’s coronavirus shutdowns weigh on demand, thwarting uncertainty over supplies from Russia as the war in Ukraine drags on.

Saudi Aramco cuts prices for the first time in four months. The state-controlled company lowered its key grade of light Arabian crude for next month’s shipments to Asia to $4.40 a barrel above the benchmark it uses, from $9.35 in may. This lines up with a Bloomberg survey of refiners and traders from late April that predicted a decline of $5.

Aramco also lowered all ratings for the North West Europe region and almost all for the Mediterranean. Pricing for US customers remained unchanged from May.

Saudi Arabia has boosted its crude to record highs in the past two months after prices surged above $100 a barrel when Russia invaded Ukraine. Russian exports have already fallen and could fall further as the European Union moves closer to formally sanctioning the country’s energy supplies.

As the war has tightened the global oil market, Beijing’s Covid Zero strategy has resulted in the biggest demand shock in China since the early days of the pandemic. Consumption of gasoline, diesel and aviation fuel last month is expected to drop 20% from a year earlier, Bloomberg reported on April 22.

China’s strategy

Chinese Premier Li Keqiang warned in a statement on Saturday of a “complicated and serious” employment situation as the government tries to contain the Covid. Chinese leaders doubled down on their strategy last week, warning against any attempt to question the approach even as economic activity contracts amid factory shutdowns and supply chain disruptions.

Still, the world’s largest independent oil trader said on Sunday that China’s measures were working when it came to stopping the spread of the virus.

“This is obviously a terrible situation for the citizens of Shanghai and entire parts of Beijing have been asked to work from home,” Mike Muller, Vitol Group’s Asia manager, said in a podcast produced by Gulf Intelligence on Sunday. , based in Dubai. “But it didn’t spiral or snowball into something really, really dramatic. Therefore, people didn’t worsen their projections of lost demand from China.

Aramco’s decision comes days after OPEC+, led by Saudi Arabia and Russia, agreed to continue increasing crude production only gradually, adding 432,000 barrels per day to the market in June. The group of 23 nations struggled to achieve even that modest goal.

Saudi Arabia sends more than 60% of its rough exports to Asia, with China, Japan, South Korea and India being the biggest buyers.

Dear reader,

Business Standard has always endeavored to provide up-to-date information and commentary on developments that matter to you and that have wider political and economic implications for the country and the world. Your constant encouragement and feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these challenging times stemming from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative opinions and incisive commentary on relevant topical issues.
However, we have a request.

As we battle the economic impact of the pandemic, we need your support even more so that we can continue to bring you more great content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscriptions to our online content can only help us achieve the goals of bringing you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism we are committed to.

Support quality journalism and subscribe to Business Standard.

digital editor

Back To Top