Oil prices have fully entered wartime logic: Saudi Arabia raises export premiums to record levels

China Finance Network (CFN) April 7 News (Editor Zhao Hao) With the conflict in the Middle East continuing to expand and the Strait of Hormuz being nearly shut down, causing violent turbulence in the energy market, Saudi Arabia has already decided to raise the premium on crude oil destined for Asia to a record level.

According to the leaked price list, the premium for Saudi Aramco’s flagship product “Arab Light” (Arab Light) for next month’s sales to Asian refiners has been increased to a level that is $19.50 per barrel higher than the relevant regional benchmark.

It should be noted that this level is far below the range estimated by the outside world. Traders explained that, due to the war causing sharp fluctuations in Middle East benchmark prices and the oil price having fallen sharply at the end of last month, this month’s pricing is especially difficult to gauge.

The regional benchmark Saudi Arabia refers to is made up of the Dubai price and Oman crude futures. In the past month, this combination has become increasingly unstable, because spot supplies used to assess prices have been scarce due to the fighting, causing these benchmarks to be distorted.

Some Asian refiners have even proposed alternative approaches, including using the global benchmark Brent crude oil to price Saudi crude.

Meanwhile, the war has also forced a change in the global crude oil transportation pattern. With the closure of the key shipping route, the Strait of Hormuz, conventional shipping routes for millions of barrels of crude oil from Persian Gulf oil-producing countries such as Saudi Arabia have been cut off.

As an alternative, Saudi Arabia has shifted most of its exports to Yanbu Port in the Red Sea (Yanbu). The port is about 1,200 kilometers from its traditional loading port, Ras Tanura.

But Saudi Aramco’s official prices still retain a pricing mechanism based on shipments loaded from Ras Tanura, which further increases uncertainty for buyers’ actual procurement costs.

At present, Saudi Aramco has asked customers to submit demand applications for lifting cargo from different ports separately, and stated that it will supply Arab Light crude oil only from Yanbu Port.

Among Persian Gulf oil-producing countries, only Saudi Arabia and the United Arab Emirates have large-scale alternative export channels to bypass the Strait of Hormuz.

Saudi Arabia’s oil pipeline to the Red Sea is currently operating at full capacity, with transport capacity of 7 million barrels per day. Meanwhile, crude oil exported via Yanbu Port is close to 5 million barrels per day, accounting for about 70% of the total export volume before the outbreak of the conflict.

Saudi Aramco CEO Amin Nasser said in a telephone meeting on March 10 that the company has significantly cut production of medium and heavy crude oil and instead is focusing on selling light and ultra-light crude oil sourced from Yanbu Port.

(CF News Zhao Hao)