Saudis slash main oil price to rare discount as market dives

RIADYH: Saudi Arabia made big reductions to its main crude oil price for buyers in Asia, selling barrels at a discount for the first time since it embarked on a price war in 2020, as a surge of global supply heightens competition to find buyers.

State producer Saudi Aramco will lower Arab Light oil for next month by US$11 a barrel to US$1.50 below the regional benchmark, according to a price list published Monday.

The last two times it sold the grade at a discount were during price wars in 2020 and 2015, while it marks the largest monthly reduction in official selling prices since at least 2000.

The retreat underscores the speed with which Persian Gulf producers have ramped up flows through the Strait of Hormuz after an interim US-Iran deal, pressuring markets for physical barrels and forcing producers to lower their prices.

In recent weeks, Brent crude futures have erased all of their gains from the conflict and real-world crude has traded with discounts not seen since the Covid-19 pandemic.

Even with the deeper-than-expected cut, several Asian crude buyers said that the Saudi prices are more expensive than supplies from other regional producers that are available for immediate purchase on an ad-hoc basis, a sign that there could be further reductions ahead if the amount of crude available remains elevated.

Saudi Arabia has long been the custodian of the global oil market, boosting or reducing output when it has seen the need to do so. Though the kingdom has embarked on two price wars in the last 15 years, it has also reduced output at times to keep markets in balance.

It is currently gently lifting supply quotas as part of a series of agreements within the OPEC+ alliance.

The interim US-Iran peace deal has enabled Gulf producers to ramp up exports at the same time as a flood of trapped barrels escape through the Strait of Hormuz.

With many of the world’s wartime workarounds still in place, including a plunge in Chinese crude imports, a sudden wave of oil supply has hit global markets.

Official price “cuts for August loading reflect the overhang of prompt cargoes,” said Ahmed Mehdi, an oil analyst at Renaissance Energy Advisors, adding that the plunge wasn’t a sign of a price war, but rather a function of “Hormuz’s messy normalization.”

“Pricing needs to be competitive enough to reinvigorate Chinese interest,” he added.

The scale of the Saudi cutback will nonetheless raise questions on whether other Middle East producers might be forced into steeper cuts to their prices as they compete for customers. Official prices from other producers in the region are expected to be released in the coming days.

Before the war, Saudi Arabia loaded most of its crude from within the Persian Gulf. However, Aramco diverted a chunk of those flows to its Red Sea facility at Yanbu as the war effectively blocked Hormuz.

The kingdom made the rare move of selling some cargoes on a spot basis in recent days, as it resumed flows of shipments that had been trapped inside the Persian Gulf.

Aramco made larger cuts for buyers in Europe, reducing all of its grades by US$15 a barrel. It cut US crude supplies by US$8 a barrel.