By Clyde Russell
LAUNCESTON, Australia – Saudi Aramco’s decision to cut the price of its crude for Asian customers shows just how difficult it is for the world’s largest oil exporter to walk the line between maintaining market share and restraining output enough to bolster prices.
Saudi Aramco said on Sunday that it will lower the official selling prices (OSPs) of its crude grades by $2 a barrel to Asian refiners for February-loading cargoes from January levels.
This takes the OSP for Aramco’s benchmark Arab Light grade to a premium of $1.50 a barrel to the Oman/Dubai average for February, down from $3.50 for January shipments.
It was the biggest cut in the OSPs in 13 months, and likely came in response to Asian refiners, who buy the bulk of Aramco’s exports, calling for more competitive Saudi prices against oil from both other Middle East suppliers, as well as from those in the Americas and Africa.
The question for refiners is whether the lower OSPs will be enough to tempt them to take full contracted volumes from Aramco, or even try to boost their allocations.
Even with the lower OSPs, Saudi crudes may still be more expensive for Asian refiners compared to similar grades from other exporters.
Saudi crude for Asia is priced against the Oman/Dubai average, which consists of the two regional benchmarks.
Oman futures ended on Monday at $77.83 a barrel, while cash Dubai was $77.90, giving an average price of about $77.87.
With the February OSP at a premium of $1.50 a barrel, this means Asian refiners face paying about $79.37 for February-loading Arab Light cargoes, assuming current pricing is maintained.
Nigerian Bonny Light crude, which has a similar gravity to Arab Light, ended on Monday at $77.32 a barrel, while another similar African crude, Angola’s Cabinda was at $77.22.
This means that the African crudes are likely to prove more competitive than Arab Light for Asian refiners, even if the shipment costs are slightly higher given the longer sea voyage.
Aramco’s second-largest export grade, Arab Extra Light, competes with lighter crudes such as Brent and West Texas Intermediate (WTI).
The OSP for Arab Extra Light was set at a premium of $1.55 a barrel to the Oman/Dubai average for February-loading cargoes.
WTI futures ended at $70.77 a barrel on Monday, while Brent contracts finished at $76.12.
This means that currently both WTI and Brent will be more competitive for Asian refiners than Aramco’s Arab Extra Light grade.
Of course, price isn’t the only determinant of Aramco’s exports, there is also the important factor of the security of the Saudi giant being a reliable, long-term supplier with a proven track record.
The bulk of Aramco’s crude is sold under term contracts, which do offer some flexibility to both parties as to the volumes supplied or sought.
