Saudi Arabia announces biggest crude price cut in over 20 years for Asia

Saudi Aramco sharply cut its August Arab Light price for Asia after oil prices eased and supplies rose. The move signals a market shifting from disruption fears to stronger competition for buyers.

In Short

• Saudi Aramco cuts August crude prices to Asia by $11 per barrel
• Largest price drop since 2003, lowest level since June 2020
• Price cut exceeds analyst predictions amid rising Gulf oil supplies

Saudi Arabia has announced its biggest reduction in crude oil prices for Asian buyers in more than two decades, as easing geopolitical tensions in the Middle East and rising global oil supplies continue to weigh on the market.

State-owned Saudi Aramco has cut the official selling price (OSP) of its flagship Arab Light crude for August deliveries to Asia by $11 per barrel, setting it at a $1.50 discount to the Oman/Dubai benchmark.

According to Reuters data going back to 2003, this is the largest price cut on record. It also brings the August OSP to its lowest level since June 2020. The previous month's price had been set at a premium of $9.50 per barrel.

The reduction was much steeper than analysts had expected. A Reuters survey conducted in late June had forecast the August OSP would be set at a premium of between $1.50 and $3 per barrel. However, crude prices have fallen further since then as Gulf producers increased supplies, prompting a much larger cut.

WHY THE DISCOUNT FOR ASIA?

The move comes as global oil prices have eased following the de-escalation of the Israel-Iran conflict and the gradual reopening of shipping through the Strait of Hormuz, reducing concerns over supply disruptions in one of the world's most important oil transit routes.

Brent crude has retreated to around $72 per barrel, giving up much of the geopolitical risk premium that had pushed prices sharply higher during the conflict.

Asian refiners are also expected to receive increased crude supplies from the Middle East as exports return to normal. During the conflict, Saudi Aramco had rerouted shipments from its Red Sea terminal at Yanbu after disruptions in the Persian Gulf.

Adding to the improving supply outlook, the OPEC+ alliance agreed on Sunday to raise oil production targets from August. With exports through the Strait of Hormuz gradually normalising, major Gulf producers including Saudi Arabia, Iraq and Kuwait are expected to increase output, adding more crude to the global market and intensifying competition for Asian buyers.

Saudi Aramco also reduced prices for customers in other regions.

The company lowered the Arab Light OSP for Northwest Europe to a premium of $0.85 per barrel over ICE Brent, down $15 per barrel from the previous month. It also cut the price for North American buyers to a premium of $4.60 per barrel over the Argus Sour Crude Index (ASCI), down $8 per barrel from July.

The sharp price reductions reflect a market that has shifted rapidly from concerns over supply disruptions to expectations of higher output and softer demand, with oil producers now competing more aggressively for buyers.

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