Aramco cuts November oil prices for Asia to the widest discount since 2020

Saudi Aramco set the November price of Arab Light for Asian buyers at $5 a barrel below the Oman/Dubai average, in a pricing document that appeared on Monday, October 5. The cut is $3 from October, and the discount is the widest since June 2020.

Aramco raised November prices for northwest Europe and the Mediterranean by $3 a barrel across all grades, after exports resumed from Yanbu, its port on the Red Sea. It left prices for buyers in the United States unchanged.

A pipeline carrying Saudi oil west to that port was hit by strikes from Iraq on Friday, September 11, and restarted on Tuesday, September 22, Amena Bakr, an analyst at Kpler, said. While Yanbu was down, Kpler said Saudi cargoes into Europe had been cancelled.

Confirmed Saudi crude crossing the Strait of Hormuz rose from 0.7 million barrels a day in August to 2.8 million in September, Kpler said. Hormuz is the narrow sea lane out of the Gulf. Oil loaded at Yanbu does not pass through it.

People familiar with the matter said last week that Aramco had been looking at discounts on oil loaded onto tankers off Oman, to compensate buyers for record freight rates, as it sought to protect market share after the conflict hit exports. The discount under discussion was around $9 a barrel, for cargoes loading in the second half of October. Aramco has not said that this is why the November list was cut.

The number is a gap, not a price of its own. Buyers in Asia pay the average of Oman and Dubai prices, the benchmark for Middle Eastern barrels there, plus or minus a set amount. For November that amount is $5 off. Europe's price is a gap to Brent, the global benchmark.

A survey ahead of the list had expected a $3 increase for Asia, in line with gains in Middle Eastern benchmarks. A $3 cut is $6 a barrel away from that forecast.

What the war did to supply

The US and Israeli war with Iran began in late February. Brent was about $73 a barrel before it.

Exports from Gulf members of OPEC+, the oil-producer group, have fluctuated at 60% to 80% of normal in recent months. Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman pumped 25 million barrels a day in August, roughly 5 million below their February level, OPEC figures show.

In the last week of September, Middle East crude exports topped pre-war levels on four of seven days, Kpler data showed.

On Sunday, a day before the price list, the seven OPEC+ countries agreed to keep November required production at the September levels. Required production is a target, not barrels pumped.

"The OPEC+ group of seven kept their production ceilings unchanged, in line with market expectations. That said, despite rising flows through the Strait of Hormuz, their output levels remain well below quota," said Giovanni Staunovo, an analyst at UBS. "Consequently, the oil market remains tight."

Staunovo calls the market tight. Saudi Arabia, the largest Middle Eastern crude exporter, widened the Asia discount anyway.

On Friday, October 2, the G7 agreed to release 100 million barrels of diesel and crude from emergency reserves.

At 1:52 a.m. New York time on Monday, Brent was at $101.48 a barrel, down 0.75% from the prior settle.

"The G7 decision to tap strategic reserves is taking some of the immediate supply anxiety out of the price, while there's a growing view that Saudi export volumes are moving back toward pre-war levels, even if those barrels are still moving at higher cost and via less efficient routes," said Tim Waterer, chief analyst at KCM Trade.

The seven countries meet again on Sunday, November 1, and Aramco has not published the discount on loadings off Oman that people familiar described last week.