According to Garfield Reynolds, direct correspondent for Bloomberg Markets, one of the recent positives for bonds and non-energy stocks may have steered its course after Saudi Arabia raised the price of its primary crude for Asia for a third consecutive month.
Over the weekend, state-owned Saudi Aramco raised the official June selling price of Arab light crude to customers in Asia by 90 cents to $2.90 a barrel above the regional Oman-Dubai benchmark, Bloomberg reported. That compares with a 60 cent increase in a Bloomberg survey of six refiners. The prices of other light and heavy categories were also hiked from May onwards.
The rise highlighted Saudi Arabia’s efforts to keep the market tight amid waning war risks in the Middle East, helping lower oil prices in London. Most traders and analysts predict the Organization of the Petroleum Exporting Countries and its allies will extend their production curbs until the end of the year.
Crude fell a significant step last week due to a rise in US inventories and hopes that Middle East tensions could cool further, but Reynolds says it is likely to be busy finding new ground rather than settling for continued declines. Israel and Hamas could agree on a cease-fire — if the status of negotiations remains unclear after the latest round in Cairo — which could trigger a new, sharper drop in crude oil prices in the short term.
But it seems likely that Saudi Arabia and other producers will try to cut supply to push up prices.
Two-year US inflation trades at ~2.5%, showing bonds are vulnerable to sticky oil prices even with WTI below $80/barrel.
