Some Chinese refiners have not nominated term crude cargoes from Saudi Arabia for August, while others have not been allocated any term supply for next month, as weak demand in China, competition from other producers, and continued disruptions at the Strait of Hormuz have slashed Saudi supply in recent months.
At least two refiners in China have not asked for any term cargo deliveries for August, and a few others have not received provisional allocation volumes, traders with direct knowledge of the supply arrangements told Bloomberg on Tuesday.
Since the war began, Saudi Arabia has been allocating between 10 million and 20 million barrels to ship to China every month. That’s four to two times lower than the monthly volumes of about 40 million barrels of Saudi crude that Chinese refiners were allocated on average last year.
The available volumes and prevailing prices since the Iran war began have led to the plunge in Chinese term allocations of Saudi crude oil supply.
In the early weeks of the war, Saudi Aramco set a record-high premium to benchmarks for its term supply loading for Asia.
Early this month, Saudi Arabia slashed the price of its crude oil loading for Asia next month by the most in two decades as the world’s top crude exporter and the other major exporters in the Persian Gulf restarted the competition to sell into their biggest market, Asia.
Arab Light, the flagship Saudi grade, will be sold next month at $1.50 per barrel below the Oman/Dubai average, the benchmark off which Gulf producers price their crude going to Asia.
Discounting the crude to the benchmark is a very rare move from the world’s top crude oil exporter.
However, the Kingdom faces stiffer competition from its fellow Gulf oil exporters, who are offering even bigger discounts and loadings from outside the Strait of Hormuz, at a lot cheaper freight costs for the buyer.
The re-escalation in the Strait in the past few days could also disadvantage Saudi Arabia in shipping crude from Ras Tanura in the Gulf and through Hormuz.
By Tsvetana Paraskova for Oilprice.com
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