The last few days saw crude oil prices being battered by news that eight members of the OPEC+ group may start to wind back some of their production cuts from the fourth quarter onwards.
The news was enough to send Brent crude futures to a four-month low of $76.76 a barrel as investors took the view that the exporter group will be adding barrels back into the market at a time when demand is still uncertain. It’s also possible that OPEC+ is shifting strategy to focus on stabilising, or even regaining, some of its market share lost in the last two years to rival producers, such as the United States.
However, oil prices are staging a small recovery amid hopes that demand will actually enjoy a renaissance in the second half of the year, a view reinforced by expectations that United States is about to start cutting interest rates.
A further boost may be delivered by the decision by Saudi Aramco, the state-controlled oil giant, to lower its official selling prices (OSPs) for its main customers in Asia for July-loading cargoes. The OSP for its flagship Arab Light blend was set at a premium of $2.40 a barrel to the Oman/Dubai average for July shipments, a 50-cent cut from the June level, according to a document seen by Reuters.
This is the first cut to the OSPs in five months and comes amid weakening refining margins in Asia and so far tepid demand growth in the world’s top-importing region. Asia’s crude imports for the first five months of 2024 were 27.19 million barrels per day (bpd), up a mere 100,000 bpd from the same period last year, according to data compiled by LSEG Oil Research.
The weak growth in imports contrasts with OPEC’s expectation for strong overall demand growth in Asia, with the group’s May monthly report forecasting a 1.27 million bpd rise for 2024 as a whole.
