Saudi Arabia has slashed the price of its crude oil loading for Asia next month by the most in two decades as the world’s top crude exporter and the other major exporters in the Persian Gulf restarted the competition to sell into their biggest market, Asia, after the tentative reopening of the Strait of Hormuz.
Saudi Arabia, as well as Iraq, Kuwait, and the United Arab Emirates (UAE), have bet in recent weeks that the situation with the navigability through the Strait of Hormuz will only improve from now on, and have restarted the fight for market share in Asia.
The events from Tuesday night, when the situation actually worsened with Iranian attacks on tankers, U.S. retaliatory strikes on Iranian targets, and the U.S. revoking the sanctions waiver for Iranian oil sales, show that all bets are off on how fast traffic could return to some kind of normalcy.
Nevertheless, the Gulf oil exporters are keen to attract Asian buyers and are offering hefty discounts to the Dubai/Oman benchmark.
Saudi Arabia slashed early this week the official selling price (OSP) of its crude loading for Asia in August by $11 per barrel compared to the July pricing in what was the biggest month-over-month cut in two decades. Arab Light, the flagship Saudi grade, will be sold next month at $1.50 per barrel below the Oman/Dubai average, the benchmark off which Gulf producers price their crude going to Asia.
Discounting the crude to the benchmark is a very rare move from the world’s top crude oil exporter. The last two times Saudi Arabia was selling its oil in Asia at discounts to Oman/Dubai were during the last two price wars when the OPEC, and later OPEC+, producers fought for market share and flooded the market with oil—in 2015, and again in the early spring of 2020 during peak Covid.
This time, despite the massive Saudi price cut for August, refiners in Asia and analysts think that the Kingdom faces stiffer competition from its fellow Gulf oil exporters, who are offering even bigger discounts and loadings from outside the Strait of Hormuz, at a lot cheaper freight costs for the buyer.
All these producers are aware that they need to slash prices to incentivize Chinese buying, following four months in which China slashed its crude imports.
Having amassed more than 1.3 billion barrels of crude in storage prior to the Iran war, China is patiently waiting for prices to come down and Hormuz traffic to sort of normalize before deciding to step up purchases again.
The Middle Eastern producers are desperate to move crude out of storage and out of the tankers that had remained blocked in the Persian Gulf, and to start restoring the upstream production they were forced to shut in. They have no choice but to try to tempt Asian buyers, especially those in China, with attractive enough prices.
Saudi Arabia had to slash its prices, but even the rare discount to the Middle Eastern benchmark may not be enough to attract buyers in Asia, refiners and traders say.
Other producers, including Iraq, Kuwait, and the UAE, offer deeper discounts and/or ship-to-ship (STS) transfers at Sohar and Fujairah outside the Strait of Hormuz, which reduces not only risks but also tanker charter costs.
“I am getting Upper Zakum and Das at -$7, so why will I buy more Saudi oil?” a source at an Indian refinery told Reuters, referring to the key UAE grades.
The UAE’s offer of selling Upper Zakum for loading at Sohar in Oman, outside the Strait, includes a charter rate for a supertanker at $4-$5 per barrel, a trader told Reuters, adding that the Saudi offer of loading crude at Ras Tanura in the Persian Gulf is more than double that freight cost.
“Saudi oil from inside the strait is way more expensive,” said the trader.
More than four months after the Iran war began and nearly three weeks after the tentative reopening of the Strait of Hormuz, the new reality for the Gulf producers is a scramble for every barrel to leave the Persian Gulf via the Strait of Hormuz and fight for every customer in Asia.
By Tsvetana Paraskova for Oilprice.com
