DTN Oil

WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Monday's session mostly higher after Saudi Arabia's state-owned oil company Aramco raised benchmark prices in all major markets for next month, signaling a stronger demand recovery as China reopens from COVID shutdowns and macroeconomic indicators from the United States and European Union indicate their economies picked up momentum.

Saudi Aramco -- the world's top exporter -- lifted prices for its benchmark crude it sells to Asian buyers for the first time in six months, adding $0.20 bbl to March sales. The change means Saudi Light crude grade will carry a $2 bbl premium over the average of the Oman and Dubai benchmarks. OPEC's top official this morning said they expect strong demand growth in Asia this year, citing a sharp recovery in China's mobility.

"There is a pent-up demand that accumulated over the pandemic," Sheikh Nawaf Al-Sabah, chief executive officer of Kuwait Petroleum, told Bloomberg TV on Monday, adding that "Now, with the opening up, we're seeing an increase in demand that is sustainable. This is not a dead-cat bounce."

Aramco also raised prices of its Arab Light crude for customers in northern and southern Europe by $2 bbl, widening the premium over the Brent crude benchmark to $0.50 bbl. For U.S. buyers, Aramco lifted OSP prices by $0.30 bbl in March to a $6.65 bbl premium against the Argus Sour Crude index.

Saudi Arabia emerged as a major supplier of crude oil and oil products into the European Union after EU banned all seaborne imports of Russian crude oil late last year. On Sunday (2/5), EU embargoed all purchases of Russian oil products, including gasoline, diesel, jet fuel, naphtha, and fuel oil. The trade restriction is complimented with a price cap agreed to by the Group of Seven nations -- the U.S., United Kingdom, Germany, France, Italy, Japan, and Canada.

The cap prohibits shipping and insurance firms from trading Russian refined products unless they are below a cap of $100 bbl for gasoline, diesel, and jet fuel, and $45 bbl for naphtha and fuel oil. The cap on products follows a $60 bbl price cap on Russian crude oil exports that took effect in early December.

The embargo and price caps are aimed at reducing the revenue Moscow receives from oil and product sales that can be used for its war in Ukraine while keeping Russian oil on the market. In the immediate term, the price caps are not seen having much effect considering Russian petroleum is trading within the set price ranges. Longer term, they may prove more effective at slowing Russian revenue inflows as the G7 and EU continue to diversify away from Russian energy.

Earlier in the session, the oil complex got a leg up from reports suggesting Turkey shut down a key export port of Ceyhan on the Mediterranean Coast after a 7.7-magnitude earthquake struck the Kahramanmaras region, killing hundreds in Turkey and Syria. Ceyhan is the key hub for oil sales from northern Iraq, Azerbaijan, and Kazakhstan into the EU. The port exported over 1 million bpd in January, according to vessel tracking and Bloomberg data.

So far, no leaks have been detected along the pipelines feeding oil to the port but damage assessment is still in the early stages. The Kerkuk-Ceyhan pipeline carrying oil from Iraq to Turkey and the Baku-Tbilisi-Ceyhan pipeline that connects oil fields in Azerbaijan, Turkmenistan, and Kazakhstan, with Turkish export ports are expected to restart on Monday.

At settlement, West Texas Intermediate futures for March delivery advanced $0.72 to $74.11 bbl, and the international crude benchmark Brent contract rallied to $80.99 bbl, up $1.05 bbl. NYMEX RBOB March contract added $0.0524 to $2.3734 gallon, and March ULSD futures settled down modestly at $2.7687 gallon after trading at a $2.6653 one-year low on the spot continuous chart.

Liubov Georges can be reached at liubov.georges@dtn.com