The price of Saudi crude oil has been climbing higher during the last few months. The chart below shows Arabian Light Oil price between December 2016 and April 2018. In addition to this, at the beginning of April, Saudi Aramco – officially, the Saudi Arabian Oil Company –, a Saudi Arabian national petroleum and natural gas company based in Dhahran, has decided to lift the official selling price (OSP) for Asia of its flagship Arab Light to higher-than-expected levels.
As a consequence, Asia’s largest refiners, China Petroleum & Chemical Corporation or Sinopec, a Chinese oil and gas company based in Beijing, have announced big cuts in Saudi crude oil imports for June and July loadings, after having already slashed May shipments by 40 percent.
An official, who declined to be named, commented: “Our refineries think that these are unreasonable prices as they do not follow the pricing methodology.”
China’s Sinopec is not the only one which has embarked this initiative. Indeed, India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) has also cut its annual oil import deal with the top Arabian oil exporter by about 22 percent to 70,000 barrels per day.
Asian oil traders have struggled to understand how Saudi Arabia derived its official selling prices (OSPs) for May, after the world’s top oil exporter unexpectedly raised the price for its flagship Arab Light crude sold to Asian refiners.
The unexpected price increase prompted some Asian refiners to trim imports and seek substitutes in the spot market.
For Saudi Aramco, higher prices mean higher upfront revenues, but, on the other hand, the decrease in the number of barrels sold has determined a decline by 3.5 percent in Saudi Arabia's crude oil production. There is a clear trade-off between short-term needs and long-term problems. This, in turn, is expected to strengthen the valuation of Saudi before the IPO: a serious valuation would involve taking a view on future prices and the $100 oil price assumption may be considered as sustainable given the long-term sentiment.
According to some analysts, the company’s valuation could exceed the $1.5 trillion threshold given the assumptions that investors require a 7 percent free cash flow yield and that the oil price remain at a level of $100 a barrel. On the other hand, this estimate is still considerably lower than the one, amounting at $2 trillion, that Saudi Arabia claimed.
Some Unipec executives, who declined to be identified, declared that they plan to reduce Saudi oil supply also in June and July, but without indicating how much supply will be cut.
Saudi Aramco did not respond to an e-mail from Reuters seeking comment on Sinopec’s cuts.
Roberto Senatore
As a consequence, Asia’s largest refiners, China Petroleum & Chemical Corporation or Sinopec, a Chinese oil and gas company based in Beijing, have announced big cuts in Saudi crude oil imports for June and July loadings, after having already slashed May shipments by 40 percent.
An official, who declined to be named, commented: “Our refineries think that these are unreasonable prices as they do not follow the pricing methodology.”
China’s Sinopec is not the only one which has embarked this initiative. Indeed, India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) has also cut its annual oil import deal with the top Arabian oil exporter by about 22 percent to 70,000 barrels per day.
Asian oil traders have struggled to understand how Saudi Arabia derived its official selling prices (OSPs) for May, after the world’s top oil exporter unexpectedly raised the price for its flagship Arab Light crude sold to Asian refiners.
The unexpected price increase prompted some Asian refiners to trim imports and seek substitutes in the spot market.
For Saudi Aramco, higher prices mean higher upfront revenues, but, on the other hand, the decrease in the number of barrels sold has determined a decline by 3.5 percent in Saudi Arabia's crude oil production. There is a clear trade-off between short-term needs and long-term problems. This, in turn, is expected to strengthen the valuation of Saudi before the IPO: a serious valuation would involve taking a view on future prices and the $100 oil price assumption may be considered as sustainable given the long-term sentiment.
According to some analysts, the company’s valuation could exceed the $1.5 trillion threshold given the assumptions that investors require a 7 percent free cash flow yield and that the oil price remain at a level of $100 a barrel. On the other hand, this estimate is still considerably lower than the one, amounting at $2 trillion, that Saudi Arabia claimed.
Some Unipec executives, who declined to be identified, declared that they plan to reduce Saudi oil supply also in June and July, but without indicating how much supply will be cut.
Saudi Aramco did not respond to an e-mail from Reuters seeking comment on Sinopec’s cuts.
Roberto Senatore