Saudi Arabia cuts oil prices for Asia to a six-year low, but raises it for Northern Europe

A pricing document published on Monday, 5th October, is said to show that Saudi Arabia is adjusting its oil prices, in some cases significantly. Prices for November deliveries to Asia have ‘surprisingly’ fallen to a six-year low, But by contrast, their prices for north-western Europe and the Mediterranean region are increased.

Oil prices rise: Saudi Arabia wants more money from Europe

Saudi Arabia has cut the official selling price for ‘Arab Light’ crude oil for the Asian market by three US dollars compared with the previous month. This puts the price of this grade at five US dollars per barrel (1 barrel equals 159 litres) below the average price of Oman and Dubai crude. As reported, citing its own data, this is the largest monthly discount since June 2020.

The state owned oil company Saudi Aramco has reduced the Official Selling Price (OSP) of the heavier crude grades ‘Arab Medium’ and ‘Arab Heavy’ for the Asian market by five US dollars. Sources familiar with the matter had previously reported that Saudi Aramco intends to use these price cuts to offset the high freight rates paid by Asian buyers. In this way, the state-owned company aims to secure its market share after the Strait of Hormuz crisis plunged the global oil market into chaos.

By contrast, OSPs (Official Selling Price) for buyers in north-western Europe are rising by three US dollars per barrel across all grades of oil. Buyers in the US are not expected to see any changes in price.

Saudi Arabia’s ploy regarding the Strait of Hormuz blockade

The background: Over the past few months, exports through the strait between Iran and the United Arab Emirates have slowed considerably and, in some cases, come to a complete standstill. Because Iran has repeatedly attacked ships, insurers have significantly increased insurance costs and freight rates per ship have soared to astronomical levels.

Analysts at ‘Lloyd’s List’ have noted that several indices tracking freight rates have recently risen dramatically. The Suezmax index (US–Europe route) jumped by 150 per cent week-on-week, whilst the West Africa–Europe index rose by 145 per cent. Suezmax vessels are dimensioned to pass through the Suez Canal. The situation is similar for VLCCs (VLCC stands for Very Large Crude Carrier, i.e. large vessels designed to carry crude oil), the index for the West Africa–China route rose by 43 per cent to around 700,000 US dollars, and that for the US Gulf–China route by 20 per cent.

Over the past few months, Saudi Arabia had begun carrying out ship-to-ship transhipments outside the Strait of Hormuz. The country is said to have sold millions of barrels of crude oil in this way, with oil flows through the waterway having almost returned to pre-war levels.

Oil pipeline boosts exports once again

Furthermore, the country has transported oil via a pipeline to the Red Sea port of Yanbu and shipped it on from there. Figures from Kpler show that crude oil exports from the Middle East rose to 16.3 million barrels per day in September – the region is now only three million barrels a day short of pre-war levels.

The various measures Saudi Arabia is pursuing to boost exports again are working, but they are costly and, in some cases, complicated. Although the price of West Texas Intermediate crude is currently falling significantly (US$87 per barrel on 6 October), it remains well above January’s levels.

100 million barrels of new oil from G7 countries

For Europe, these price adjustments have several implications. At less than seven per cent, Saudi Arabia is a relatively minor supplier to the European Union – the US (14.6 per cent) and Norway (12.8 per cent) are far more important. Cheaper oil for Asia may mean that Asia places less demand on other parts of the global market.

Finally, the tension in the Middle East has not yet been resolved. To take further pressure off the oil market, the G7 countries announced in early October that they intended to release 100 million barrels of crude oil and diesel from their reserves.

Francis Tawiah (Duisburg, Germany)

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