The Strait of Hormuz [AP]
The Strait of Hormuz [AP]

Saudi Arabia has slashed the price of Arab Light, its flagship crude for Asian markets, marking the first discounted sale of the grade in six years. The move comes as oil supply through the Strait of Hormuz has rapidly normalized following a provisional peace deal between the United States and Iran.

According to Bloomberg, Saudi state oil company Aramco set the official selling price for August-delivery Arab Light at $1.50 per barrel below the average of Oman and Dubai crude — a cut of $11 per barrel — on Monday.

Arab Light is the cornerstone of Saudi crude exports, and refineries across Asia's major oil-importing nations — South Korea, Japan and China — are configured to process it.

The last time Saudi Arabia sold Arab Light at a discount was in 2020, when it launched a production war with Russia during the COVID-19 pandemic. Including a price cut aimed at competing with the US shale industry in 2015, this is the third time since 2000 that Riyadh has offered the grade at a discount — and the largest single-month reduction on record.

Market observers view the move less as a price war and more as the result of intensifying competition following the normalization of supply.

Since the US and Iran concluded a provisional peace deal, Gulf oil producers have been rapidly resuming crude exports through the Strait of Hormuz. The resulting surge in physical supply has pushed spot market discounts to their widest levels since the COVID-19 pandemic.

Brent crude futures have also given back most of the gains recorded during the peak of Middle East tensions.

However, some Asian buyers say Saudi crude remains more expensive than spot prices offered by other regional producers even after Aramco's price cut, leaving open the possibility of further reductions.

Saudi Arabia is currently expanding production in line with an output increase agreement reached by OPEC and its allied non-member producers under the OPEC+ framework.

Ahmed Mehdi, an analyst at Renaissance Energy Advisors, said the move "reflects the oversupply that followed the normalization of the Strait of Hormuz rather than a signal of a price war," adding that it is "a strategy to strengthen competitiveness in Asian markets, particularly China."


sjy@heraldcorp.com