Wedoany.com Report-Nov. 12, Saudi Aramco has lowered the official selling price (OSP) of its crude oil for Asian refiners for December cargoes, a move interpreted as an effort to stay competitive amid growing concerns about potential global oversupply. However, the price reduction was modest and fell at the lower end of expectations from Asian refiners, suggesting that the adjustment is aimed at maintaining market balance rather than aggressively expanding market share.

FILE PHOTO: The Saudi Aramco logo is pictured at Hyvolution exhibition in Paris, France, February 1, 2024.

Aramco (2222.SE) announced last week that the OSP for its flagship Arab Light crude for December-loading cargoes would be set at a premium of $1 per barrel over the Oman/Dubai average. This represents a decrease of $1.20 per barrel from November’s premium of $2.20, bringing the OSP to its lowest level in 11 months. Asian refiners, who account for about 80% of Aramco’s seaborne exports, had forecast a price cut of between $1.20 and $1.50 per barrel, according to a Reuters survey.

The decision indicates that Aramco continues to base its pricing on current market trends. Recent data show that the premium of cash Dubai crude to swaps has narrowed, averaging $1.12 per barrel so far this month compared with $1.73 in September. Meanwhile, the global benchmark Brent crude has weakened relative to Dubai, with the exchange for swaps falling to a rare discount last week. On Monday, Brent’s discount to Dubai widened to $0.26 per barrel — the largest gap in more than five years — after having traded at a premium of $3.77 as recently as June.

These changes mean that crude grades priced against Brent, such as those from West Africa, Latin America, and the United States, have become relatively cheaper than Middle Eastern grades linked to Dubai. By adjusting its OSP, Aramco is ensuring that its crude remains competitive in Asia’s refining market, helping Saudi oil remain part of refiners’ procurement plans for December and January.

The adjustment also positions Aramco to benefit from potential shifts in trade flows resulting from new sanctions on Russian crude. Reports indicate that refiners in China and India — two major buyers of Russian oil — are considering alternative supply options. Data from Kpler estimate that China’s seaborne crude imports from Russia will decline to around 926,000 barrels per day (bpd) in November, down from 1.45 million bpd in October, while China’s Saudi crude imports are expected to rise to 1.78 million bpd from 1.20 million bpd.

In contrast, India’s Saudi oil imports are projected to fall slightly to 589,000 bpd in November from 691,000 bpd in October, while its Russian crude imports are expected to increase to 2.26 million bpd from 1.70 million bpd. However, some Indian refiners have indicated plans to gradually reduce Russian purchases from December onward.

Overall, Aramco’s pricing strategy appears designed to safeguard its market position in Asia while preserving flexibility to respond to changing trade dynamics and potential supply adjustments in the months ahead.