Middle East crude oil prices are high, OPEC+ will reduce production cuts

The high price of Middle East crude oil is becoming increasingly noticeable. As the United States has strengthened sanctions on Russia, China and India have increased their demand for Middle East crude oil, a substitute for Russian crude oil. If major oil-producing countries such as Saudi Arabia expand supply in line with the increase in demand, it is possible that international oil prices will fall.

From the perspective of crude oil trading, indicators vary from region to region. Generally speaking, in Asia, it is Dubai crude oil from the Middle East, in Europe, it is Brent crude oil from the North Sea, and in the United States, it is West Texas Intermediate (WTI). In addition to differences in sulfur content and viscosity, supply and demand in each region also affect prices.

Currently, Middle East crude oil is more expensive than Europe and the United States. According to Nikkei Value Search, the spot price of Dubai crude oil in the Middle East reached $78 per barrel on February 18, up 8% from the end of 2024. The increase in Brent crude oil futures and WTI futures was only about 2% during the same period.

The background is the growing demand for Middle East crude oil in the Asian market. The former Biden administration of the United States strengthened economic sanctions against Russia on January 10. China and India turned to buying Middle East oil to replace Russian oil.

Data from European research firm Kpler show that in terms of the amount of crude oil exported by Saudi Arabia, the largest oil producer in the Middle East, to China and India, the shipments in January exceeded 2 million barrels per day, an increase of nearly 30% from the previous month. It accounted for 37% of Saudi Arabia’s total exports, higher than 33% in the same period last year. As of the 19th, exports to China and India in February seemed to exceed those in January.

There is also a view that China will further increase its demand for Middle Eastern crude oil. On February 10, China began to impose a 10% tariff on crude oil imported from the United States. Xu Muyu, a senior crude oil analyst at Kpler, said that the proportion of US crude oil in China’s total imports is very small, less than 2%, but this part still needs to be filled.

Saudi Arabia seems to be confident in the growing demand in the Asian market. State-owned oil company Saudi Aramco raised the price of crude oil sold to Asia in March.

The Organization of Petroleum Exporting Countries (OPEC) and OPEC+, formed by Russia and others, plan to phase out the voluntary production cuts of some member countries from April. Takayuki Nogami, chief economist at the Japan Energy and Metals National Corporation (JOGMEC), said, “Strong demand in Asia is likely to be a driving force in the decision to reduce the scale of production cuts.” Although reducing production cuts will lead to lower oil prices, OPEC+ can maintain oil revenue as long as sales are ensured. The reduction of production cuts was shelved three times in 2024. Some analysts believe that the motivation to restore market share plays a big role during the period of demand in Asia. On February 12, US President Trump and Russian President Putin reached an agreement to launch ceasefire negotiations on the Russia-Ukraine conflict. With the expectation of increased Russian oil supply, if OPEC+ reduces production cuts as originally planned, market prices are likely to be further under downward pressure.