Global sour crude prices soar as Saudis tighten supplies
2023/7/17
In early June, OPEC+ oil producers decided to maintain current production cuts until the end of 2024, while Saudi Arabia, OPEC's largest oil producer, said it would voluntarily reduce crude oil production by 1 million barrels per day to around 9 million barrels in July. Last week, Saudi Arabia also said that it would extend the agreement to unilaterally cut 1 million barrels of crude oil production per day until August, and raised the price of some grades of crude oil so that they could be shipped to Asia in August.
Production cuts by Saudi Arabia and other Middle Eastern producers, which began in May, have already had a huge impact on supply of medium sour and heavy crudes, and prices are rising. In contrast, supplies of light crudes such as Brent and other grades that underpin the Brent benchmark have been high. In other words, the tightness in sour crude is not reflected in the price of international benchmark Brent, which has so far failed to break above $80 a barrel despite OPEC+ and Saudi Arabia's production cuts .
As supplies of sour crude from Saudi Arabia and other Middle East dwindled, buyers looked for alternatives in other parts of the world, pushing up prices for sour crude.
For example, sour crude prices in the US, Canada and the North Sea have rebounded. U.S. Mars sour crude traded at the Cushing hub at a premium of $2 a barrel to other U.S. crude futures at the weekend, the highest in three years, according to Reuters estimates. Mars also traded above light sweet crude WTI Midland, in a rare price reversal.
In Norway, medium sour crude from the giant Johansverdrup offshore field hit a premium of $3.50 a barrel to Brent on Friday. Higher Saudi Arabian oil prices and a reduction in Saudi Arabian crude supplies have boosted Johansverdrup crude prices, traders told Bloomberg News. Johansverdrup typically trades at a discount to Brent due due to Norwegian crude's higher sulfur content. Six months ago, Johansverdrup was trading at $6 a barrel below Brent.
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