Saudi Arabia cuts November Asia oil prices to 6-year lows

Summary

• Saudi Aramco set November Arab Light for Asia at $5 below the Oman-Dubai average.
• The cut of $3 defied a Reuters survey forecasting a hike of up to $5.
• Asian refiners say the discount offsets record freight costs and shipping delays.

The latest

Saudi Arabia cut its November crude prices for Asian buyers to the lowest level in six years, widening the discount on Arab Light to $5 a barrel below the Oman-Dubai average, a pricing document showed Monday. The reduction of $3 from October ran against the market, which had expected an increase. Prices for northwest Europe and the Mediterranean were raised.

Details

• The headline number: Aramco set the November official selling price for Arab Light sold to Asia at $5 a barrel below the average of Oman and Dubai benchmarks, according to the pricing document. That is a reduction of $3 from the previous month, and the widest discount since June 2020, Reuters data showed.
• Against the forecast: A Reuters survey of refiners had pointed to a hike of as much as $5 a barrel for the November price, tracking gains in the Middle Eastern benchmarks that normally anchor Saudi pricing. The move in the opposite direction caught the market without warning.
• Heavier grades: Aramco also cut November official selling prices for Arab Medium and Arab Heavy sold to Asia by $5 a barrel, extending the reduction across the heavier end of the Saudi slate rather than confining it to the kingdom's flagship light grade.
• The other regions: While Asian prices fell, Saudi Arabia raised official selling prices for buyers in northwest Europe and the Mediterranean, according to the same document, splitting its November pricing between the two markets.
• The freight explanation: Three Asian refining sources, speaking on condition of anonymity, said the cuts appeared designed to compensate buyers for elevated shipping costs rather than to signal weaker demand for Saudi barrels.
• Shipping costs: Booking a very large crude carrier capable of hauling 2 million barrels from the Gulf to China cost $1.2 million a day on Friday, according to LSEG data. A year earlier the same vessel class was running at about $80,000 a day.
• Market share: People familiar with the matter said last week that Aramco had been weighing discounts on oil loaded off Oman to offset record freight rates, as it moved to protect market share after disruptions from the US-Israeli war against Iran affected exports.
• The Egypt factor: One of the refining sources said the lower prices could also offset the waiting time and longer voyage for Saudi crude exported through the Egyptian port of Sidi Kirir, where cargo loadings have been delayed.

Background

Aramco sets official selling prices monthly for each region and grade, pegging Asian cargoes to the Oman-Dubai average. The formula usually tracks benchmark movements closely, which is why a $3 cut against rising benchmarks stands out.

Between the lines

The pricing split tells the story: Europe and the Mediterranean paid more while Asia paid less, which points to a freight problem rather than a demand problem. With carrier rates fifteen times higher than a year ago and Sidi Kirir loadings delayed, a discount at the wellhead is what keeps delivered Saudi crude competitive in Asian refineries.

What's next

Watch how rival Middle Eastern producers set their own November prices for Asia, whether very large crude carrier rates from the Gulf to China ease from $1.2 million a day, and whether Sidi Kirir loading delays clear.

Source: Reuters (via Zawya)