Aramco weighs $9 discount on Oman-loaded crude to offset freight costs

Summary

• Aramco is discussing discounts on crude sold off Oman to offset record freight rates, sources said.
• The kingdom has been charging Asian buyers premiums of $10-$20 a barrel for the same barrels.
• Cheaper cargoes could help Aramco recover Asian market share lost to Hormuz shipping disruption.

The latest

Discounts of roughly $9 a barrel are under discussion for Saudi crude sold via ship-to-ship transfers off Oman, five people familiar with the matter told Reuters. The talks involve Asian refiners and could cover cargoes offered this week for second-half October loading. Aramco declined to comment.

Details

• The mechanism: The discounts would be applied to Aramco's official selling prices, the benchmark formula that sets what Asian refiners pay each month, according to the sources. They would cover barrels transferred ship-to-ship off Oman rather than loaded at Saudi terminals inside the Gulf.
• The number: One source put the discount under discussion at around $9 a barrel. That would reverse a pricing dynamic that has run in Aramco's favour for weeks, and the sources did not indicate whether the level has been agreed with any buyer.
• The premiums: In recent weeks Aramco sold crude to Asian buyers at premiums of $10 to $20 a barrel over its monthly official selling prices for loading off Oman, outside the Strait of Hormuz, as the kingdom raised volumes exported from fields inside the Gulf, Reuters reported.
• The disruption: Saudi crude exports through the Strait of Hormuz are set to reach about 7.4 million barrels per day this month, according to preliminary data from ship-tracking firm Kpler. The shift followed drone attacks that damaged the East-West pipeline and forced Riyadh to divert flows from the Red Sea port of Yanbu.
• The blame: Saudi Arabia has blamed an Iraqi militia for the attack on the pipeline. No group has been identified by name in the kingdom's accounting of the strike, and the freight cost pressure now weighing on its Asian sales traces directly back to that rerouting.
• The competitor: UAE state-run ADNOC has significantly increased sales by moving crude from fields west of the Strait to export terminals sitting outside it, according to Reuters. That gives Abu Dhabi a structural advantage on freight while Saudi barrels travel the longer route.
• The precedent: This is not Riyadh's first attempt to absorb its customers' shipping costs. Before the pipeline damage, Saudi Arabia offered buyers the option of paying based on the official selling price for the month of arrival rather than the month of loading, easing the cost of longer voyages via the Sidi Kerir terminal.
• The company line: Saudi Aramco declined to comment on the discount discussions. The five sources described the talks as ongoing, and no buyer has been named as having accepted the proposed terms.

Background

Ship-to-ship transfers off Oman let Saudi crude reach buyers without transiting the Strait of Hormuz, but the extra handling and longer voyages raise freight costs that Asian refiners must absorb in their landed price.

Between the lines

The gap between charging $10-$20 premiums and discussing a $9 discount marks how quickly the pricing power has turned. With ADNOC selling from terminals already outside the Strait and freight at record levels, Aramco's premiums risk pricing its barrels out of Asia — a discount is the cheaper way to hold volume.

What's next

Watch whether the discounts appear in cargoes offered this week for second-half October loading, and whether Aramco's next monthly official selling prices for Asia reflect the freight adjustment.

Source: Reuters