Fears of a recession and the rise in Saudi oil product prices are likely to clash

The world’s crude oil prices and markets are facing yet another crisis. It truly is in shambles. Two days ago Saudi Arabia increased the price of their oil products exports to a record high. The reason for the hiked-up price was good refining profits and robust demand. It’s no mystery that Saudi Arabia is the world’s biggest oil exporter. Nevertheless, even a nation blessed with reserves can’t escape the effects of the current worldwide recession. Today the official selling price of their oil products has slumped by 11% ever since the mark-up in the price. Since everyone has fears about recession demand seems to be weaker than what Saudis thought it would be for the Asian market. In hindsight, the reconciliation of these two events shows how the perception of this huge market differs from the harsh reality of trading oil physically.

The official selling price for Asian clients for August-loading cargoes increased from July’s level by $2.80 per barrel to a premium of $9.30 per barrel over the local prices. Saudi Aramco withholds the pricing formula it uses to determine its official selling prices. Although it is widely believed to be a rather complex procedure. It takes into account the relative cost of local reserves refining margins, and the actual volumes that refining customers are looking for.

Was it a mistake for Saudi Arabia to start pumping up the oil price?

Saudi Aramco can’t generate money at $40 per barrel. The Nation’s government needs roughly $80 per barrel to balance its budget. In comparison, Russia has far stronger financial standing. The majority of Russian businesses produce profits that are comparable to those of Aramco. But after being sanctioned by the west for the invasion of Ukraine there is a gap in the oil market. A big Russian oil importer is India. As they buy cheap Russian oil and export their diesel and gasoline. However compared to Saudi Arabia, they have lower debt and require only $50 a barrel of oil to balance their budget.

The cheap price of oil will be very beneficial for China. It is obvious that the US and Saudi Arabia have had a serious falling out over currencies and oil product prices. It had to happen. The US government’s energy independence program allocates significant public subsidies to the expensive domestic production of oil and gas. American government and its fossil fuel consumers are responsible for covering those expenditures.

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