Bloomberg News

Right now in the crude market there are two contrasting stories.

For the grades that underpin Brent and West Texas Intermediate futures, things aren’t looking great. Refineries in Europe and the US are entering an annual period of maintenance that acts as a drag on buying.

That dampener on demand comes just as supplies of the light, low-sulfur crudes that make up benchmark contracts appear to be increasing. The expansion of Kazakhstan’s Tengiz oil field has triggered a flood of extra cargoes, while Norway’s Johan Castberg grade should come online soon.

The situation is different, however, for the other types of supplies: so-called medium and heavy sour barrels. They are thicker and more sulfurous than those produced in Europe and the US.

They also help make larger volumes of products — such as fuel oil and asphalt — than their lighter equivalents.

The market for those barrels is so strong that for much of the year they’ve been trading at an unusual premium to Brent. As a result, Middle Eastern producers pumping those grades have embarked on some of their biggest price increases in years.

During the past two weeks, Saudi Aramco hiked its flagship crude price to Asia by the most since August 2022. Iraq jacked up the value of its Basrah Medium grade to Asia by the most in data going back to February 2021.

The rising rates will be good news for the region’s economies after the annual average for Brent declined each of the past two years, reversing the surge that followed Russia’s invasion of Ukraine. Saudi Arabia was one of the biggest bond issuers in emerging markets during the last year.

There’s also a chance those unusual premiums could be sustained.

OPEC+ discussions about delaying output hikes will keep heavier supplies tighter for longer, demonstrating the need for producers to sustain higher prices. Plus, if the Trump administration can successfully bring down Iranian oil exports toward 100,000 barrels a day, that would add more pressure.

While that would be bad news for Tehran, it may mean that prices in the rest of the region climb even higher.

–Alex Longley, Bloomberg News