Saudi Aramco announced on Sunday that it would be reducing crude prices worldwide, including in its largest market, Asia. This decision comes as a response to weaker global oil prices and increased oil production from countries outside the Organization of the Petroleum Exporting Countries (OPEC).
According to a notice from Aramco, the prices for various grades of Saudi crude, including the popular Arab light, will decrease by $2 per barrel compared to the Oman/Dubai regional benchmark. Additionally, the premium for Saudi crude against the ASCI index, which serves as a benchmark for Gulf Coast sour crudes, will also decrease by $2 per barrel. In northwest Europe and the Mediterranean, prices will be lowered by $1.50 to $2 per barrel compared to the ICE Brent crude benchmark.
In the summer months, the price of crude experienced a rally mainly due to Saudi Arabia's decision to implement a production cut of one million barrels per day, in addition to cuts made by other OPEC members and allies like Russia. However, in the fourth quarter of last year, crude prices declined significantly. To address this, Saudi Arabia and OPEC+ have decided to extend production cuts into 2023.
The US benchmark for crude, West Texas Intermediate (WTI), saw a decline of over 21% in the fourth quarter resulting in an overall decrease of 10.7% in 2023. Similarly, the global benchmark, Brent crude, fell approximately 19% in the fourth quarter, registering a loss of 10.3% in 2023.
However, oil prices rebounded last week due to attacks on shipping in the Red Sea by Iran-backed Houthi rebels operating from Yemen. These attacks forced crude rerouting and raised concerns about a potential broader conflict that could disrupt petroleum flows in the Middle East. As a result, there has been an increased demand for US crude, leading to a narrowing of the price gap between WTI and Brent. Analysts also anticipate that US crude exports may break records as a result.
Simultaneously, US oil production has reached over 13 million barrels per day, reaching near-record levels. This increase in production has helped alleviate earlier concerns about tight oil supplies.