Aramco says global oil demand remains healthy and will continue to rise in the long term

Aramco says global oil demand remains healthy and will continue to rise in the long term

Saudi Arabia and OPEC+ have sent mixed signals to global energy markets as summer approaches. While Saudi Aramco trimmed its official selling prices (OSPs) for Asian crude buyers in July 2025, the reduction was smaller than expected, reflecting domestic demand pressures [1]. Meanwhile, OPEC+ accelerated production increases, unwinding voluntary cuts and exacerbating oversupply concerns. This article examines the interplay between these moves and their implications for refining margins, equity valuations, and investment strategies.

Saudi Arabia's July OSP for Arab Light crude settled at $1.20 per barrel above the Oman/Dubai average—a 20-cent decline from June but less than the 40–50 cent drop analysts anticipated. The muted cut underscores a delicate balance: domestic crude burn for power generation during peak summer demand (June–August) has constrained export volumes. With refineries operating at high capacity to meet domestic needs, Saudi Arabia's exports are effectively rationed, limiting the depth of its price reductions [1].

OPEC+'s Supply Surge: A Recipe for Oversupply?

In June 2025, OPEC+ agreed to its fourth consecutive monthly production increase, adding 411,000 bpd to global supply. This brings total hikes since April to 960,000 bpd, unwinding 44% of the 2.2 million bpd of voluntary cuts initially agreed in 2022. Analysts now expect the remaining cuts to be phased out by October 2025, potentially flooding markets with an additional 1.3 million bpd [1].

The results are stark: Brent crude fell to $59.95/barrel on May 5, the lowest since April 2025, and forecasts have been slashed. Barclays and ING now project $66–65/barrel for 2025, down from earlier $70+ estimates. A contango structure in futures markets—where near-term prices exceed long-term prices—signals expectations of persistent oversupply [1].

Strategic Alignment or Contradiction?

Saudi Arabia's modest price cut and OPEC+'s production surge appear misaligned at first glance. However, they reflect a coordinated strategy to prioritize market share while hedging against demand risks [1]. Domestic Priorities: Riyadh's smaller OSP reduction ensures it retains pricing power in Asia, even as it limits exports due to summer demand. Supply Discipline: OPEC+'s incremental increases aim to avoid a sharp price collapse, but the cumulative effect risks overcorrection. Demand Uncertainty: Trade tensions and weak industrial data cloud the outlook for global consumption, making gradual supply adjustments safer than abrupt moves.

Investment Implications: Playing the Margins

The interplay of these factors creates opportunities across energy equities and derivatives. Equity Plays: Saudi Aramco: Despite its price cuts, its dominant position as a pricing benchmark and cost leadership ($2–3/barrel production costs) make it a long-term hold. Asian Refiners: Companies like India's Reliance Industries or South Korea's S-Oil could benefit if OPEC+ supply surges depress crude prices while refined products (gasoline, diesel) remain stable. Monitor refining margins closely—narrowing spreads might signal overproduction. US Shale Producers: Firms like EOG Resources or Pioneer Natural Resources could underperform if oil prices stay below $65/barrel, but their flexibility to scale production could pay off if OPEC+ reverses course. Derivatives Strategies: Short-term Bearish Bets: Consider put options on Brent futures if contango persists, betting on further price declines. Long-term Hedges: Call options with strike prices above $70 could protect against a supply-demand rebalancing later in 2025. Risk Management: Oil ETFs: The United States Oil Fund (USO) offers exposure to crude prices but carries contango-related decay risks. Diversification: Pair energy plays with gold or bonds to hedge against macroeconomic volatility.

Conclusion: A Delicate Dance Between Supply and Demand

Saudi Arabia and OPEC+ are navigating a precarious path between supporting prices and maintaining market share. Investors must monitor two critical thresholds: crude price floors and demand recovery signals. For now, the market remains in Saudi Arabia's hands—its ability to balance domestic needs with export discipline will determine whether this summer becomes a period of consolidation or a catalyst for volatility.

References:
[1] https://www.ainvest.com/news/saudi-aramco-strategic-pricing-opec-output-surge-navigating-energy-markets-2025-2507/