Saudi Arabia’s latest oil price hike has sapped buyer appetite

At least four buyers of Saudi crude oil from Asia and Europe have changed their plans for future orders after the kingdom announced its latest price hike, Bloomberg has reported, citing unnamed sources.

Earlier this week, Saudi Arabia said it would increase the Dubai/Oman premium of its flagship Arab Light crude to $3.20 a barrel for August, with Asia accounting for 60 per cent of the country's market, OilPrice.com reports.

The increase was almost the smallest for Asian buyers, however. Per documents cited by Bloomberg, Saudi Aramco hiked its prices for European buyers by $0.80 per barrel—versus $0.20 for Asian buyers—and by $0.10 per barrel for US buyers, according to Reuters.

This was the second month in a row that saw price hikes for Asian buyers, Reuters noted in a report, adding that while the move was not unexpected by most, some buyers were surprised because they had expected a cut in prices for August.

According to a Reuters poll from earlier this month, refiners expected a price cut of up to $0.50 per barrel for Arab Light in the context of supplier competition and lower refining margins in Aramco's biggest export market.

"Saudi needs to trim prices to reflect the market movements. They have gone a bit too far from the reality in the past few months," one poll respondent said at the time.

Higher Saudi oil prices normally prompt buyers to look for alternative suppliers rather than cut their total intake of oil and this case is likely no exception. The usual alternatives for Asian refiners are other Middle Eastern crudes, Russian oil and U.S. oil, too.

For European buyers, the alternatives would come from other OPEC members as well as the United States, which has quickly become a major hydrocarbons suppliers to the continent.

The price increase announcement comes on the heels of Riyadh’s plans to extend voluntary production cuts beyond the end of July. This should add to the upside potential of oil prices and squeeze margins for Asian and likely European refiners.