20h00 ▪
4
min reading ▪ by
Luc Jose A.
Oil sector heavyweight Saudi Arabia is making headlines with another increase in oil prices for Asian buyers. This decision comes in a context of increased volatility, accentuated by geopolitical tensions in the Middle East and uncertainties around global energy demand.
An adjustment strategy in the face of geopolitical tensions
Saudi Arabia, a member of the BRICS alliance, has decided to increase the prices of its Arab Light oil for its Asian customers, an increase of 90 cents per barrel, which brings the premium to 2.20 dollars at above the regional reference price. The move is oil giant Aramco’s fifth consecutive increase for the Asian region. The Saudi company thus surpassed expectations, as investors anticipated a more moderate increase of 65 cents. Aramco made the decision amid high uncertainty in the oil market as tensions in the Middle East continue to rise.
The move comes as Brent, the oil benchmark, rose more than 8% this week, mainly due to Iranian missile strikes in response to Israeli attacks in Lebanon. The tense geopolitical situation has amplified concerns over the stability of oil supplies, although no major disruptions in supply have been reported so far. Thus, Saudi Arabia’s decision aims to compensate for the risks through an adjustment of prices, and to consolidate its leading position in the face of Asian demand, which remains crucial for its exports.
Delicate management of supply within OPEC+
In parallel with the increase in prices for Asia, Saudi Arabia and its OPEC+ partners have made an equally strategic decision: that of delaying an increase in production initially planned for October and November 2024. This postponement is carried out with a view to controlling supply, in order to avoid a glut of oil on the world market. For several months, the members of OPEC+ and BRICS, led by Saudi Arabia and Russia, have voluntarily limited their production. This decision allows Riyadh to maintain its exports at less than six million barrels per day, a historically low level for the Kingdom.
Investors interpret this choice as a preventive measure in the face of signs of weakness in global demand, particularly in China, where oil consumption remains below expectations. Through this restriction of supply, Saudi Arabia seeks to stabilize prices in order to adapt to uncertainties linked to global demand. This balancing act is all the more crucial as the economic health of consuming countries such as China and India will directly influence the Kingdom’s oil revenues.
With this decision, Saudi Arabia clearly shows its desire to protect its economic interests in an unstable global context. As tensions in the Middle East continue to weigh on the market and uncertainties around global demand increase, the Kingdom is adopting a proactive posture following its new strategy relating to increasing its production. However, the success of this strategy will largely depend on the evolution of geopolitical conflicts and economic recovery in Asian countries. The coming months will allow us to gauge the effectiveness of this decision and understand whether OPEC+ and the BRICS will succeed in stabilizing a market under pressure.
Maximize your Cointribune experience with our ‘Read to Earn’ program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
Luc Jose A.
A graduate of Sciences Po Toulouse and holder of a blockchain consultant certification issued by Alyra, I joined the Cointribune adventure in 2019. Convinced of the potential of blockchain to transform many sectors of the economy, I took the commitment to raise awareness and inform the general public about this constantly evolving ecosystem. My goal is to enable everyone to better understand blockchain and seize the opportunities it offers. I strive every day to provide an objective analysis of current events, to decipher market trends, to relay the latest technological innovations and to put into perspective the economic and societal issues of this ongoing revolution.
DISCLAIMER
The comments and opinions expressed in this article are those of the author alone, and should not be considered investment advice. Do your own research before making any investment decisions.
