Saudi Arabia Raises Crude Oil Prices to a Two-Year High Despite Falling Global Oil Prices

Middle Eastern Crude Sees Largest Price Hike in Two Years Amid Supply Concerns / Reuters

Saudi Arabia’s state-owned oil giant, Aramco, has announced the largest increase in crude oil prices in nearly two years for its Asian buyers, raising prices by $2.4 per barrel. This move comes despite a recent decline in global oil prices, driven by rising U.S. crude inventories and escalating uncertainties surrounding the U.S.-China trade war. The decision reflects Saudi Arabia’s strategic response to shifting global supply dynamics, particularly following the U.S. sanctions on Russian energy companies that have forced major Asian refiners, including those in China and India, to seek alternative crude sources.

According to Bloomberg, Aramco’s price hike for Arab Light crude, set for March delivery to Asia, surpasses traders' expectations, which were around $2 per barrel. This marks the steepest increase since August 2022, underscoring Saudi Arabia’s leverage in the current oil market landscape. The price adjustment is directly linked to the U.S. government’s sanctions imposed on January 10 against Russian oil companies and the so-called "shadow fleet" of 183 vessels transporting Russian crude globally. Goldman Sachs estimates that these sanctioned ships were responsible for transporting approximately 1.7 million barrels of oil daily, accounting for about 25% of Russia's total exports.

As these sanctions disrupt Russia’s oil export capabilities, Asian refiners, particularly in China and India, are racing to secure alternative crude supplies to maintain production stability. The demand surge for Middle Eastern crude has naturally driven up premiums, as refineries in Asia are not only geographically closer to Saudi Arabia but also optimized to process Middle Eastern grades. This structural dependency has made Asian crude premiums highly sensitive to supply shocks, such as those triggered by geopolitical sanctions.

Bloomberg reports that Saudi Arabia’s decision to increase prices is a calculated move to capitalize on the rising premiums for Middle Eastern crude and improved refining margins in Asia. Interestingly, Aramco also raised prices for crude destined for Europe and the United States, although the price hike for the U.S. market was relatively modest. This cautious approach reflects concerns over potential supply disruptions linked to ongoing trade tensions between the U.S., Canada, and Mexico, which could affect heavy crude availability.

Meanwhile, global oil prices have been on a downward trend. On February 5, West Texas Intermediate (WTI) crude futures for March delivery fell by 2.3% to $71.03 per barrel, while Brent crude for April delivery dropped 2.09% to $74.61 per barrel. This marks WTI’s lowest level since late December, influenced by growing U.S. crude inventories and the looming risk of a renewed U.S.-China trade war. The U.S. Energy Information Administration (EIA) reported an unexpected surge in crude inventories, with an increase of 8.66 million barrels as of January 31, significantly exceeding market expectations of a 2.6 million-barrel rise.

John Kilduff, a partner at Again Capital, attributes the inventory buildup to weak gasoline demand and widespread refinery maintenance activities across the U.S., reducing immediate crude purchasing needs. Additionally, escalating trade tensions between the world’s largest energy consumers— the U.S. and China—have further pressured oil prices. President Donald Trump’s announcement of a 10% tariff on Chinese imports prompted retaliatory measures from China, including plans to impose tariffs on U.S. crude oil, liquefied natural gas (LNG), and coal. As a result, WTI crude prices plummeted by 3%, hitting their lowest point since December 31.

Despite the downward trend in international oil prices, Saudi Arabia’s bold price hike for its flagship crude highlights the kingdom’s strategic influence over global energy markets. As Asian refiners continue to grapple with supply chain adjustments, the ripple effects of Saudi Arabia’s pricing decisions are expected to impact not just regional economies but also global energy dynamics in the months ahead.