From Shortage to Surplus: Saudi Arabia Has Drastically Cut Oil Prices

Saudi Aramco has lowered prices for all crude grades, according to a price list published on July 6. The discount on its flagship Arab Light grade for Asian buyers was $11 per barrel, the largest since June 2020, when Saudi Arabia was engaged in a price war with Russia, the Financial Times notes. This is also the largest monthly drop in official selling prices since at least 2000, according to Bloomberg.

Arab Light will be sold at a discount of $1.50 to the regional benchmark—the average price of the Oman and Dubai reference crude grades. Previously, at the start of the Iranian crisis, the company had, on the contrary, raised premiums to record levels, the agency notes.

For buyers in Europe, Saudi Aramco has cut prices even further: by $15 per barrel. For U.S. importers, the discount will be $8 per barrel.

This decision shows just how quickly Gulf producers have ramped up shipments through the Strait of Hormuz following the interim deal between the U.S. and Iran, according to Bloomberg. Saudi Arabia, one of the world’s leading exporters, is rushing to ship out oil stockpiled during the war, leading to a surge in market supply, CNBC reports. In recent weeks, Brent futures have lost all the gains linked to the conflict, while physical crude has been trading at discounts not seen since the Covid-19 pandemic.

And even after the price of Arab Light fell, several Asian oil buyers said that Saudi Aramco’s prices remain higher than those of other regional producers whose supplies are available for immediate purchase, according to Bloomberg. This is a sign that further price list revisions may be on the horizon, the agency notes.

"The official price cut for 'August shipments reflects an oversupply of spot offers,'" Ahmed Mehdi, an oil analyst at Renaissance Energy Advisors, explained to Bloomberg. According to him, this does not mean that a price war has begun, but is rather linked to the “chaotic normalization of the Strait of Hormuz.” “Prices need to be competitive enough to rekindle China’s interest,” he added.

China is the world’s largest oil importer; before the war began, it received about 5.5 million barrels of oil daily from the Middle East, primarily under long-term contracts with Saudi Aramco and other suppliers. After the conflict began, the country cut back on purchases from the region, which contributed to a cooling of the global oil market. Traders are now closely monitoring the return of Chinese buyers, as this could support oil prices, according to the FT.

The discounts have already had an impact on Beijing: it has increased its imports, the publication reports, and forecasts a further rise in purchases. However, according to analysts, China will proceed cautiously so as not to trigger a new surge in global prices. Nevertheless, China’s mere return to the Middle Eastern oil market is already a positive factor for prices, the FT writes.

This article was AI-translated and verified by a human editor