Saudi Arabian Oil Co. (Aramco) has lowered its official selling price for July shipments of Arab Light to Asia. The new price is $1.20 per barrel above the Oman/Dubai average, down from $1.40 in June. This adjustment reflects a predicted drop in demand in Asia, affecting light and medium crude grades, while the price for Arab Heavy remains unchanged. On the other hand, Aramco has raised prices for shipments to Northwest Europe and the Mediterranean by $1.80 per barrel. In the United States, prices for Arab Extra Light and Light increased slightly by $0.10, while Medium and Heavy grades saw no changes.

Opec Production Increase

These price changes come as OPEC+ members plan to boost production for the third straight month in July. This raises worries about a possible surplus in supply amidst uncertain demand. The recent $0.20 drop in the price of Arab Light to Asia is a response to the softening demand observed at several Northeast Asian refineries. Such a decline typically doesn’t happen by chance; it usually stems from early buying signals and contract interests that state firms closely monitor. We’re noticing reduced competition for barrels in that region, especially for lighter grades, which are more affected by crack spreads and transportation costs. In Europe, prices have moved up by $1.80. This rise suggests either that refiners are eager for reliable supply before maintenance or that shipping challenges are driving up delivery costs from other sources. When European price differentials increase sharply, it often indicates tighter medium sour balances in Mediterranean storage and strengthening margins on kerosene-rich blends. In the United States, the small $0.10 increase for lighter oils like Arab Extra Light shows that the producer is managing expectations. Inventory levels are generally stable, with Gulf Coast imports within normal seasonal ranges. However, this increase is likely a way to stay competitive without raising expectations of tighter supply.

Broader Supply Concern

Now, let’s discuss the broader supply concern. With the production quota raised for the third month in a row, it’s a clear signal: producers are confident in their ability to produce but uncertain about short-term demand. If buying doesn’t increase, there could be oversupply in floating storage or widening Brent-Dubai spreads. This means we need to closely track differentials against dated benchmarks, especially in Asia. Declining premiums against Oman/Dubai prompt a reevaluation of time spreads and refiners’ willingness to take on new barrels before the peak summer season. A weak spot structure combined with rising output diminishes the value of prompt cargoes, which could lead to flat or contango conditions in futures markets if market sentiment declines. Now is not the time for broad assumptions. Price increases in Europe and the Mediterranean reflect local demand and logistics rather than a broader recovery. We need to consider these movements as short-term rather than long-term trends. Stability in Arab Heavy shows that complex refiners are still operating at full capacity while margins support it—but demand for lighter fractions is weak. Attention will shift towards refining margins and run rates, especially as we receive updated data from Singapore and Korea. Any sustained decrease in utilization there will affect term contracts and adjustments for September loadings. We must focus on the relative value between grades, not just the outright price differentials. In a market where one set of prices rises while another falls, arbitrage opportunities become clearer. This divergence across regions highlights the necessity to monitor freight spreads, costs for VLCCs, and the re-routing of cargoes between the Atlantic Basin and East Asia. Such a setup often leads to volatility in crude time spreads, particularly in the second and third month contracts. Now is a moment to proceed carefully—run the numbers, explore different scenarios, and keep positions light until spreads confirm the trends. Create your live VT Markets account and start trading now.

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