Aramco’s Asia price cut defies expectations as Middle East oil flows recover

Asian refiners expecting a sharp increase in Saudi crude prices have instead been offered a deeper discount. Saudi Aramco has lowered the price of its flagship Arab Light grade for November to a six-year low, according to The National — Business. The move comes as Middle Eastern oil shipments recover from disruption linked to the Iran war, putting the competition for buyers alongside the continuing challenge of getting cargoes safely through the region.

Arab Light will be priced $5 a barrel below the regional benchmark, the reference price used to set the cost of the crude. That compares with a $2 discount in October, a further reduction of $3 a barrel. Traders and refiners surveyed by Bloomberg had expected a $5-a-barrel increase for November, The National reported. The decision therefore runs sharply against the direction buyers had anticipated.

A different price for each market

The lower Asian price was not matched across Aramco’s other markets. The company increased its November prices for Europe by $3 a barrel and kept US prices unchanged from October, according to Bloomberg reporting cited by The National. The contrasting decisions suggest Saudi Arabia may be trying to expand Asian sales as more Middle Eastern oil returns to export markets. The kingdom is the world’s largest oil exporter, and Aramco is state-owned.

These are official selling prices: the prices applied to crude delivered under long-term supply contracts with refiners. They shape the cost of oil for customers that turn crude into fuels and other products. Saudi Arabia sold almost 100 million barrels to Asian buyers in mid-September, helping head off a threatened supply shortage. The November discount follows that large sale as regional shipments move closer to their prewar level.

Middle Eastern oil shipments had recovered to 98% of prewar levels, according to a JPMorgan estimate cited by Bloomberg and reported by The National.

More oil is moving, but routes remain risky

That estimate, made last week, points to a substantial recovery despite continuing attacks on vessels in and around the Strait of Hormuz. Oil volumes passing through the waterway have increased over recent months. Yet the improvement in flows has not removed the shipping risk: many customers still avoid the route, leaving alternative loading ports important to the process of arranging supplies.

Saudi Arabia has also restored much of the crude flow through its East-West pipeline after it was damaged in an attack. The pipeline carries oil from eastern Saudi fields to Yanbu on the Red Sea, allowing exports to bypass Hormuz. Its recovery has helped lift Middle Eastern exports while giving the kingdom a route outside the strait.

Refiners would normally collect contracted shipments at Ras Tanura on Saudi Arabia’s Gulf coast. The port houses one of the world’s largest oil export terminals and a major refinery. It handles a substantial share of Saudi crude exports, including cargoes bound for Europe and Asian markets such as China, Japan and South Korea.

The next step is for Asian refiners to specify how much November crude they want and where they plan to collect it. Aramco has requested these volume nominations for ports inside the Arabian Gulf, as well as Yanbu and Sidi Kerir on Egypt’s Mediterranean coast, Bloomberg reported. Those loading choices are the next point to watch as buyers weigh cheaper Saudi crude against the risks that still surround its delivery.