Saudi Arabia’s oil giant Aramco has cut the crude oil shipments loading in July to at least five of its customers in Asia, Reuters reported on Monday, quoting sources familiar with the plans.
The move from OPEC’s top producer and the world’s largest oil exporter comes after Saudi Arabia hiked its official selling prices (OSPs) for July by the most in at least 20 years. Last week, after the OPEC+ group had agreed to extend its record collective cut of 9.7 million bpd by one month to the end of July, Saudi Aramco sharply raised its prices for all grades to all regions.
The pricing of Saudi crude, typically released around the fifth of each month, generally sets the trend for the pricing for Asia of other Gulf oil producers such as Kuwait, Iraq, and Iran. The pricing of Saudi Aramco, the Kingdom’s oil giant, affects as much as 12 million barrels per day (bpd) of Middle Eastern crude grades going to Asia.
Although an increase in Saudi Arabia’s prices didn’t come as a surprise, the steep rise for July really surprised refiners, especially those in Asia, who had enjoyed three months of very cheap supply from Saudi Arabia, when the Kingdom was keeping its prices low to boost market share while demand was crashing in the pandemic.
“Increased OSPs have caught us by surprise and these are not attractive to refiners specially in a market where refining margins are weak,” R Ramachandran, head of refineries at India’s BPCL, told Reuters.
Due to the steep increase, at least one major Saudi crude oil buyer in Asia has nominated nearly one-third lower supplies from the Kingdom for July, a source with direct knowledge of the nominations request told Reuters.
Other refiners in Asia will likely look to buy more competitively priced arbitrage oil cargoes from the United States and West Africa and cut supply of what is now more expensive crude oil from Saudi Arabia and the Middle East as a whole, some of Reuters’ sources said.