Saudi Arabia’s efforts to prop up global oil prices seem to be having an impact as sour crude oil prices have climbed globally this month. The top exporter of oil, Saudi Arabia, has hiked prices and expanded production cuts of higher-sulfur oil, leading to an increase in prices for sour crude grades such as North Sea, U.S., and Canadian. Traders and brokers attribute this price surge to a combination of factors, including China, Europe, and U.S. oil refiners bidding up dwindling supplies due to sanctions on Russia and Saudi Arabia’s production cutbacks. The U.S. government’s purchases to restock its emergency reserves, production outages from Canadian wildfires, and concerns about the potential impact of the Atlantic hurricane season on U.S. sour crude production are also contributing to the price increase.
Most of Saudi Arabia’s crude oils are sour grades, which require more complex refining and typically trade at a discount to sweet crude. However, sour prices are no longer cheap, with prices for certain sour crude grades reaching record premiums. For example, Norway’s medium sour Johan Sverdrup crude traded at a record $3.50 per barrel premium to dated Brent, compared to a discount in December. U.S. Mars sour crude prices have also reached a three-year high premium to U.S. crude futures, and Western Canadian Select heavy crude traded at a significantly reduced discount.
Saudi Arabia’s price hike to Asia for the second consecutive month has pushed Chinese refiners to seek cheaper sour crude alternatives from the spot market. This has, in turn, lifted prices for other sour crudes. U.S. Gulf Coast refiners, which primarily process sour crude, are likely to purchase more Latin American barrels in response to the supply constraints.
Overall, the combination of Saudi Arabia’s production cuts, sanctions on Russia, and other market factors has created a tight market for sour crude. As a result, prices have seen a significant increase. The impact of these pricing changes will have implications for oil markets and could influence global supply dynamics.
