Saudi Arabia has cut the price of its flagship crude for Asian buyers to its biggest discount in more than six years, even as oil prices rose above $100
a barrel following claims of attacks on Saudi oil facilities. Saudi Aramco set the November official selling price for Arab Light crude in Asia at $5 a barrel below the average of Oman and Dubai prices. That is $3 lower than the October price and the widest discount since June 2020, according to Reuters data. The reduction was unexpected. Analysts polled by Reuters had forecast a $3-a-barrel increase for November, in line with higher Middle Eastern crude benchmarks. Aramco also cut prices for heavier grades. The official selling prices for Arab Medium and Arab Heavy crude sold to Asian buyers were reduced by $5 a barrel. The cuts come as Saudi Arabia faces higher shipping costs and increased geopolitical risks across the region. Aramco has been considering discounts for crude loaded from Oman to compensate Asian buyers for record freight rates, Reuters reported last week. Oil Prices Rise After Houthi Strikes The Saudi pricing decision came as fresh concerns emerged over the security of the kingdom's oil infrastructure. Yemen's Iran-backed Houthi movement said on Monday that it had launched ballistic missiles and drones at Saudi Aramco sites in Riyadh and the Khurais area. The claims raised concerns about possible disruption to production in Saudi Arabia, the world's largest oil exporter. The immediate impact of the reported attacks on Saudi oil production was unclear. Brent crude futures rose 81 cents, or 0.79%, to $103.06 a barrel by 22:02 GMT. US West Texas Intermediate crude was trading at $91.57 a barrel, up 46 cents, or 0.50%. The contrasting developments highlight the unusual conditions in the oil market. Geopolitical risks are supporting global crude prices, while Saudi Arabia is offering cheaper barrels to its biggest Asian customers. Why is Saudi Cutting Prices? The reduction appears partly aimed at maintaining Saudi Arabia's position in the Asian market. Conflict in the region has disrupted oil flows and increased freight and insurance costs. Lower official selling prices can help Saudi crude remain competitive when the overall cost of transporting oil from the region is higher. Asia is Saudi Arabia's largest market for crude, and the kingdom is facing competition from other producers as refiners adjust their supplies in response to geopolitical developments and changing crude availability. The latest cuts do not apply to all markets. Saudi Aramco raised its November official selling prices for buyers in north-west Europe by $3 a barrel across all grades after resuming exports from the Red Sea port of Yanbu. Prices for Mediterranean buyers were also increased by $3 a barrel, while prices for US customers were unchanged. The regional differences suggest that Saudi Arabia is responding to different market conditions and levels of competition rather than making a broad reduction in crude prices. What Does it Mean for India? The lower Saudi selling prices could provide some relief to Indian refiners that buy crude from the kingdom. India is one of the world's largest crude oil importers and relies on overseas supplies for most of its oil needs. Changes in the price of Middle Eastern crude can affect refinery margins and the country's import bill, with potential implications for domestic inflation. Cheaper Saudi crude could become more attractive to Indian refiners as higher freight costs and geopolitical risks complicate crude procurement. However, the benefit is unlikely to match the headline $3 or $5 reduction. The final cost paid by an Indian refiner also depends on freight, insurance, global benchmark prices and the rupee-dollar exchange rate. Higher shipping costs could offset some of the saving from the lower official selling price. There is also a wider risk. If attacks on Saudi oil infrastructure lead to an actual disruption in production or exports, a rise in global crude prices could outweigh the benefit of cheaper Saudi barrels.
