Saudi Arabia cut oil prices for its main market of Asia and for Europe, signalling that demand remains sluggish as economies slow and coronavirus cases in China surge, news agency Bloomberg reported. Brent crude futures have slumped from almost $125 a barrel in June to less than $80, with prices dropping another 7.5 per cent this week.
According to the report, interest rates and a strong dollar have weakened energy consumption among businesses in the US, Europe, and China.
Head of the International Monetary Fund (IMF) Kristalina Georgieva this week said she expected one-third of the global economy to enter a recession this year.
Saudi Aramco reduced prices for all types of crude that will be shipped to Asia in February. The company’s flagship Arab Light grade was lowered to $1.80 a barrel above the regional benchmark, $1.45 less than the price for this month. It’s now at its lowest level since November 2021.
The cut was roughly in line with a Bloomberg survey of traders and refiners.
Aramco also reduced prices for shipments to north-west Europe and the Mediterranean region. It kept costs for US customers unchanged.
Saudi Arabia sells about 60 per cent of its crude exports to Asia under long-term contracts, pricing for which is reviewed each month. China, Japan, South Korea and India are the biggest buyers. Its moves tend to be closely followed by other Persian Gulf producers such as Iraq and Kuwait.
Many oil traders expect prices to rebound in the second quarter as China’s Covid outbreak eases and, potentially, Russian supplies drop due to sanctions related to its invasion of Ukraine.
Last month OPEC+, a producers’ cartel led by Saudi Arabia and Russia, decided to keep crude output steady after lowering it by 20 lakhs barrels a day in October. The group is scheduled to meet next in June, thought it could convene sooner if prices continue to drop.