Aramco cuts Arab Light price for Asia by $2 to lowest since May 2020
Key Facts
Aramco cut the official selling price of Arab Light crude for Asian customers for December shipments by $2 per barrel from November, to a discount of $6.50 to the Oman/Dubai average, according to a Reuters report published by Zawya on Nov. 6. The report said the price was the lowest since May 2020, describing it as a six-year low. The cut widens the announced discount for Asian buyers of Saudi Arabia’s flagship crude. The decision followed a Reuters poll the previous week that showed participants expected prices to hold steady or fall by as much as $2 per barrel. The announced cut thus reached the upper end of the poll’s expectations, which cited ample Middle East supply and weak spot-market premiums.
Earlier expectations linked steady prices or cuts to ample supplies from the Middle East and weak spot-market premiums. Reuters said premiums for benchmark Middle East crudes returned during the same week to levels seen before the U.S.-Israeli war on Iran. The report added that lower refining margins in Asia had slowed buyers’ interest. That places the pricing decision in the context of competition for buyers as spot-market crude purchases became less attractive. The report did not say the cut had put broad pressure on global oil benchmarks.
An earlier comparison this year shows how Saudi selling prices for Asia have shifted. In August, the kingdom set Arab Light at a $1.50-per-barrel discount to the Oman/Dubai average, after pricing it at a $9.50 premium in July, according to an Investing.com report. The report at the time linked the lower price to increased Middle East supplies and a weak spot market. Those figures refer to August and July pricing, while the current announced cut applies to December shipments. This provides context for the price moving from a premium in July to a discount in August, then to a larger discount in the December price.
On the supply backdrop, Aramco said the East-West pipeline to the port of Yanbu had been used to maintain a significant share of its exports despite disruption to tanker traffic in the Strait of Hormuz. The company said the pipeline was attacked on Sept. 10, and flows later resumed. A Reuters report said producers increased exports despite attacks on tankers in the strait, and that Saudi exports recovered faster than expected. This backdrop reflects a supply route that does not depend solely on tanker traffic through the strait, as the East-West pipeline provides access to Yanbu. The report does not link the pipeline attack to the December price cut, but includes the incident in the context of the recovery in Saudi exports.
HSBC raised its forecast for Saudi crude oil production in the fourth quarter to 8.3 million barrels per day, from its previous estimate of 6.3 million for the same period, citing a faster-than-expected recovery in exports, Reuters reported. The revision represents an increase of 2 million barrels per day between the two estimates, based on the figures in the report. The forecast concerns fourth-quarter production, while the new price applies to December shipments bound for Asia. This places the higher production forecast alongside the announced cut in the selling price for Asian buyers. The report gave no later date for a price change or an update to the bank’s forecasts.