Saudi Aramco cuts November Arab Light prices for Asia as geopolitical tensions push Brent crude above $100 a barrel
Saudi Arabia has cut the price of its flagship crude for Asian buyers to its biggest discount in more than six years, even as oil prices climbed above $100 a barrel after Yemen’s Iran-backed Houthis said they attacked Saudi Aramco sites.
Saudi Aramco has set the November official selling price of Arab Light crude for Asia at $5 a barrel below the average of Oman and Dubai prices. That is $3 a barrel lower than the October price and the widest discount since June 2020, according to Reuters data.
The move was unexpected. Analysts polled by Reuters had expected Saudi Arabia to raise the November price by $3 a barrel, in line with gains in Middle Eastern crude benchmarks.
Aramco made even deeper cuts for heavier grades. The November official selling prices for Arab Medium and Arab Heavy crude sold to Asia were reduced by $5 a barrel.
The price cuts come as Saudi Arabia faces higher shipping costs and increased geopolitical risks in the region. Aramco has been considering discounts for crude loaded off Oman to compensate Asian buyers for record freight rates, Reuters reported last week.
Oil prices rise after Houthi claims
The Saudi pricing decision came as fresh concerns emerged over the security of the kingdom’s oil infrastructure.
More from BusinessYemen’s Iran-backed Houthis said they launched ballistic missiles and drones at Saudi Aramco sites in Riyadh and the Khurais area on Monday. The claims raised concerns about potential disruption to production in Saudi Arabia, the world’s largest oil exporter.
Oil prices moved higher following the claims.
Brent crude futures rose 81 cents, or 0.79 per cent, to $103.06 a barrel by 2202 GMT. US West Texas Intermediate crude was at $91.57 a barrel, up 46 cents, or 0.50 per cent.
The immediate impact of the reported attacks on Saudi production was unclear.
The contrasting developments underline the unusual dynamics in the oil market. Global crude prices are being supported by geopolitical risks, while Saudi Arabia is offering cheaper barrels to its biggest Asian customers.
Why Saudi Arabia is cutting prices
The reduction appears aimed partly at protecting Saudi Arabia’s position in the Asian market.
Regional conflict has disrupted oil flows and pushed up freight and insurance costs for shipments. A lower official selling price can help Saudi crude remain competitive even when the delivered cost of buying oil from the region is higher.
Asia is particularly important for Saudi Arabia because it is the largest market for its crude.
The kingdom has also faced increased competition from other producers as Asian refiners adjust their sourcing in response to geopolitical developments and changing availability of crude from different suppliers.
The latest cuts are not being applied globally.
Saudi Aramco raised its November official selling prices for northwest Europe by $3 a barrel across all grades after it resumed exports from the Red Sea port of Yanbu.
Prices for Mediterranean buyers were also increased by $3 a barrel, while prices for US customers were left unchanged.
The regional differences suggest Saudi Arabia is responding to varying market conditions and competition in different markets rather than making a broad reduction in crude prices.
What does it mean for India?
The lower Saudi selling price could provide some relief to Indian refiners that buy crude from the kingdom.
India is one of the world’s largest crude importers and depends on overseas supplies for the bulk of its oil needs. Changes in the price of Middle Eastern crude can therefore affect refinery margins, the country’s import bill and, indirectly, domestic inflation.
A lower Saudi official selling price could make Saudi crude more attractive to Indian refiners at a time when freight costs and geopolitical risks are complicating crude procurement.
But the benefit for India is unlikely to be equal to the headline $3 or $5 reduction.
The final cost paid by an Indian refiner also depends on freight, insurance, global benchmark prices and the rupee-dollar exchange rate. Higher shipping costs could offset part of the saving from the lower official selling price.
There is also a bigger risk. If attacks on Saudi oil infrastructure result in an actual disruption to production or exports, the resulting increase in global crude prices could outweigh the benefit of cheaper Saudi barrels.
OPEC+ keeps November output target unchanged
The Saudi price cuts also came a day after Saudi Arabia and other OPEC+ members agreed to keep their November oil production targets unchanged.
The decision suggests the group is not immediately responding to higher crude prices with another increase in output. OPEC+ members are expected to continue assessing market conditions before making further production changes.
For Indian refiners, the combination of lower Saudi official selling prices and unchanged OPEC+ output targets creates a mixed picture.
Cheaper Saudi crude could help reduce procurement costs and give refiners greater flexibility in sourcing Middle Eastern oil. But the advantage could quickly disappear if geopolitical tensions lead to a sustained increase in global benchmarks.
The key factor for India, therefore, will not be the Saudi price cut alone. It will be whether the discount can offset higher freight and insurance costs while global crude prices remain around or above $100 a barrel.
