Global Market: Asian refiners turn to cheaper Gulf oil despite Saudi price cuts

Saudi Arabia's steepest price reduction for crude oil sold to Asia in more than two decades has failed to make its flagship grade the most competitive in the region. Traders and refiners say rival Gulf supplies continue to offer better value.

According to Reuters, Saudi Arabia cut the August official selling price (OSP) for its benchmark Arab Light crude to $1.50 per barrel below the average of Oman and Dubai benchmark prices for Asian buyers, marking an $11 per barrel reduction from July. The kingdom also lowered the OSPs for its other four crude grades by the same amount.

Price cuts follow easing of Middle East supply concerns

The sharp reduction comes after the U.S. and Iran reached an interim agreement in June, allowing shipping activity through the Strait of Hormuz to recover and enabling oil exports to resume. According to Reuters, the easing of supply disruptions has contributed to lower global crude prices and intensified competition among Middle Eastern exporters.

However, market participants said Saudi crude remains more expensive than competing Gulf grades even after the price adjustment. They noted that other regional producers have also reduced prices aggressively, while a temporary U.S. sanctions waiver for Iranian crude exports has added another source of supply to the market.

Gulf rivals offer deeper discounts

According to Reuters, producers including Abu Dhabi National Oil Co. (ADNOC), Iraq's SOMO and Kuwait Petroleum Corp. are offering significant discounts to attract Asian buyers.


Market participants also pointed to the continued high cost of transporting crude from terminals inside the Persian Gulf, where geopolitical risks remain despite the current ceasefire between the U.S. and Iran. Those higher freight costs further reduce the appeal of Saudi crude compared with grades loaded outside the Strait of Hormuz.

Weak Asian demand weighs on Saudi exports

Reuters reported that weak demand across Asia, particularly in China, has further shifted market dynamics in favor of buyers.

Industry analysts said the combination of softer regional demand, increased competition from Gulf exporters and the temporary easing of restrictions on Iranian crude has created a challenging environment for Saudi Arabia's oil sales.

Saudi crude prices had surged to record levels in May after conflict involving the U.S. and Iran disrupted shipping through the Strait of Hormuz, a key route that normally carries about one-fifth of global oil supplies. With shipping now largely restored, regional benchmark prices have retreated.

Freight costs reduce Saudi competitiveness

Refining and trading sources told Reuters that August-loading Saudi crude remains several dollars per barrel more expensive than competing Gulf grades after accounting for freight costs.

One refining source noted that Abu Dhabi's Upper Zakum and Das crude grades are available at significantly deeper discounts than Saudi barrels. Traders also said ADNOC's Upper Zakum crude is being sold at discounts of $6-$8 per barrel below Dubai quotes for ship-to-ship transfers at Oman's Sohar port.

According to Reuters, chartering a Very Large Crude Carrier (VLCC) for those transfers costs around $4-$5 per barrel, while loading a VLCC from Saudi Arabia's Ras Tanura terminal inside the Gulf costs more than twice as much.

Another industry estimate cited by Reuters suggested that lifting crude from inside the Gulf can cost roughly $15 per barrel more than sourcing oil from outside the region, making Saudi supplies less attractive despite the lower official prices.

Market share concerns persist

Reuters reported that Saudi Aramco may continue selling more crude in the spot market as it competes with discounted supplies from neighbouring producers.

Traders believe Saudi Arabia is attempting to support crude prices rather than engage in an aggressive pricing battle, even if that means sacrificing some market share in Asia. Market participants noted that Saudi Arabia's August official selling price remains above prevailing Dubai benchmark levels, potentially limiting demand from cost-conscious Asian refiners.