Saudi Arabia Hikes Oil Prices Ahead of OPEC Meeting

Saudi Arabia raised its oil prices in markets across the world on Monday, in some cases to all-time highs, as many customers remain reluctant to buy deeply discounted oil from heavily-sanctioned Russia.

The Organization of Petroleum Exporting Countries (OPEC) is due to meet on Thursday to discuss production for May when analysts expect more price hikes could occur.

Barron’s found OPEC ministers cautiously watching the progress of peace talks between Russia and Ukraine, which began with an awkward handshake-free “cold welcome” in Istanbul on Tuesday, but also featured some talk from Russia about scaling back hostilities. 

According to Barron’s, guarded optimism about the peace talks was offset by the coronavirus lockdown China imposed on Shanghai this week and by the possibility that more oil could be released from the U.S. Strategic Petroleum Reserve to keep American pump prices from rising further. The coronavirus situation in China is complicating global shipping and depressing oil demand from China.

Oilprice.com on Monday argued the Russian invasion has “simultaneously both eased and complicated the task of Middle Eastern national oil companies” because pushing Russian oil off the market with sanctions gave the Saudis and other OPEC producers a golden opportunity to raise prices, but those price increases “could antagonize even further all the Asian buyers that keep on fretting about unprecedentedly high prices.”

The problem for OPEC is that beyond a certain price point, those antagonized Asian buyers might decide the risk of continuing to do business with Russia is worth the cost savings. The possibility of Iran re-entering the market in a big way after reviving its nuclear deal with the Biden administration is also a factor in price calculations.

Bloomberg News predicted on Tuesday one more record price hike from Saudi Arabia.

“Traders in Asia are closely monitoring the virus situation in China, which could become a more potent risk to oil demand. While it would depend on how long lockdowns will remain in place, some consultants including Energy Aspects Ltd. have already cut estimates for Chinese crude consumption,” Bloomberg noted.

The Saudis have also been loudly warning the Western world that continued terror attacks from the Iran-backed Houthi insurgents of Yemen are jeopardizing “our ability to supply the world with the necessary energy requirements,” as Saudi Energy Minister Prince Abdulaziz bin Salman put it on Tuesday.

“It goes without saying that if this security supply is impacted, it will impact us… but more fundamentally, I think it also will affect the world economy,” he said.

Prince Abdulaziz complained that the “pillars” of security once provided by Saudi Arabia’s Western allies are “no longer there,” so the Saudis and OPEC partners like the United Arab Emirates (UAE) are considering different security arrangements.