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Saudi Arabia cuts crude prices for Asia; Europe’s remain steady

Saudi Arabia

Saudi Arabia cut the prices of its light crude for Asian customers in October versus September and left Europe’s and U.S.’s prices steady. The price cut for September-October is the largest monthly reduction in a year, according to Reuters.

The price cut strategy comes as lockdowns in Asia, related to the contagion of the coronavirus, and its new variant, Delta, has lowered fuel demand in the region. On the other hand, global oil supplies are increasing as the Organization of Petroleum Exporting Countries has begun its output increase of 400,000 barrels a day.

According to a Suadi Aramco pricing document seen by Reuters, the oil giant lowered the Official Selling Price for the Asia region for the first time in four months. The cut was for $1,70 per barrel versus the average of DME Oman and Platts Dubai crudes. Reuters reports that the price differential in September was a premium of $3 per barrel, the highest since February 2020.

Such price cut has been the most significant monthly reduction in a year, as outlined above. It has taken the market by surprise, as buyers expect a drop of 20 to 40 cents per barrel. Which would have come in line with the benchmark price changes in Dubai.

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Saudi Arabia trying to seize demand in Asia

Analysts consider that the cuts are part of a strategy to raise demand for Saudi crude in the region. The move would encourage buyers to nominate full volumes for October. Traders remarked that the possibility of Saudi Arabia engaging in a price war is unlikely.

Virendra Chauhan, an analyst at Energy Aspects, said. “Demand is tentative. If they go down with the price war, they will reverse a lot of the inventory normalization achieved over the past 12-18 months.”

As said above, the price differential only applied to the Asia region. In Europe and the U.S, the price for Saudi Aramco’s light crude remains unchanged, with a discount of $1.70 per barrel versus ICE Brent crude for Europe; and at a premium of $1.35 per barrel versus ASCI for the U.S.

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