Saudi Arabia is Expected to Raise the Oil Price
Emboldened by strong prompt demand amid tighter oil supply due to the U.S. sanctions on Venezuela and Iran, the world’s top oil exporter, Saudi Arabia is expected to raise the oil price of the crude grades it sells on its premium market, Asia, for July, trade sources told Reuters on Thursday.
The Saudis could raise the price of their flagship Arab Light crude grade by up to $1 per barrel.
The price for Arab Light with a June delivery date is now the highest in almost a year, with Arab Medium selling at the highest price since the end of 2013, and Arab Heavy at a six-year high.
Increasingly Sought
Heavy grades of crude oil have become increasingly sought after by Asian refiners in recent years. This is primarily due to the rising demand for heavier, high sulfur content crude oil in the region. Asian refiners have been investing in upgrading their refining capacities to process heavy crudes, as they offer higher yields of valuable products such as diesel and fuel oil. This shift in demand has created a surge in the need for heavy grades, putting pressure on global supply.
Availability of Heavy Grades of Crude Oil
However, the availability of heavy grades of crude oil has been declining, posing a challenge to Asian refiners. One of the major factors contributing to this decline is the ongoing production slump in Venezuela. The country has been grappling with a severe economic and political crisis, which has significantly hampered its oil industry. The production decline in Venezuela, exacerbated by the political woes, has resulted in a reduced supply of heavy crude oil in the global market.
As a result, Asian refiners are finding it increasingly difficult to secure sufficient quantities of heavy crude to meet their growing demand. They have had to explore alternative sources, such as the Middle East and Africa, to fulfill their requirements. However, these regions also face their own production challenges, further complicating the supply situation. The tight supply of heavy grades has led to increased competition among refiners, driving up prices and putting additional strain on their profitability.
Long-Term Contracts
In response to these supply constraints, some Asian refiners are considering long-term contracts with oil-producing countries to secure a stable supply of heavy grades. Others are investing in upgrading their refining capacities to process different grades of crude oil, thereby diversifying their feedstock options. Additionally, efforts are being made to increase domestic production of heavy crude in Asian countries, reducing their reliance on imports.
In conclusion, the demand for heavy grades of crude oil among Asian refiners has been on the rise, driven by the need for higher yields of valuable products. However, the supply of heavy grades has been declining due to Venezuela’s production slump and political turmoil. This has created supply challenges for Asian refiners, leading to increased competition and higher prices. To mitigate the impact of these constraints, refiners are exploring various strategies such as securing long-term contracts, upgrading their capacities, and boosting domestic production.
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Source: Oilprice.com
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