Aramco Cuts Asia Oil Prices to Six-Year Low, Raises Prices for Europe

Saudi Aramco has raised oil prices for European-bound cargoes in November but has cut prices for Asian buyers to the lowest in six years, Reuters reported today, noting analysts had expected price hikes.

According to the pricing information, Aramco will be offering Arab Light at a discount of $5 per barrel to the Dubai/Oman benchmark for Asian buyers next month. The cut amounted to $3 per barrel and is the lowest since June 2020, according to Reuters records.

For European buyers, on the other hand, the November oil price will be $3 per barrel higher than it was for this month, across all grades. The prices for Saudi oil grades sold to the United States remained unchanged from October.

The discount for Asian buyers is likely a response to a surge in shipping costs for the Hormuz route, where Saudi Arabia is using ship-to-ship transfers in the Gulf of Oman to reduce the risk of Iranian attacks on vessels carrying its crude. The STS involves sending smaller vessels to pick up crude from the Persian Gulf, pass through Hormuz, and offload the crude onto VLCCs waiting off Oman. This oil-shuttling has boosted the cost of transporting crude from the Persian Gulf to other parts of the world, mostly Asia.

The freight cost for a very large crude carrier has soared to an all-time high of $1.3 million per day because of the Hormuz situation. This is up 43 times from January this year, when the rate for a VLCC stood at some $30,000 per day, according to Poten & Partners data cited by Gulf News.

Because of these price developments, freight costs now add some $33 to the price of a barrel of oil getting shipped out of the Persian Gulf. This compares to $1.73 per barrel in January. In percentage terms, freight costs now represent 27% of the delivered cost for a VLCC cargo, versus 3% in January, the Poten & Partners data also showed.

By Irina Slav for Oilprice.com

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