Aramco mulls new oil pricing for Asia as Houthis threaten flows

[RIYADH] Saudi Aramco is preparing a new selling price for oil loaded at Egypt’s Mediterranean port of Sidi Kerir for delivery to Asia after attacks by Iran-backed Houthi militants elevated risks in the Red Sea.

The producer has informed at least two Chinese refiners that it may introduce a separate official selling price for oil shipped from Sidi Kerir, the traders said, asking not to be named as they’re not allowed to speak to the media. 

State-run Aramco has been asking Asian customers to take oil deliveries from the Egyptian port, near the Suez Canal exit from the Red Sea, as some shipowners are avoiding Yanbu fearing Houthi attacks.

Meanwhile, Asian refiners are pressing Saudi Arabia for discounts to offset the higher freight costs and longer transit times required for these cargoes that need to sail around Cape of Good Hope in South Africa.

Aramco declined to comment on the matter.

The Saudi oil producer has yet to finalise details of the mechanism, including its starting date, the traders said. Other arrangements are still possible, including Aramco delivering the oil all the way to Asian shores, or using ship-to-ship transfers after sailing part of the way east through the Red Sea.

Buyers in Asia, including Indian and South Korean refiners, have increasingly leaned on cargoes from Yanbu since the Iran war effectively shut the Strait of Hormuz, ruling out loading at Ras Tanura in the Persian Gulf.

Saudi Arabia was transporting the crude to the Red Sea port across the kingdom via the East-West pipeline, a crucial workaround that allowed Aramco to continue exporting millions of barrels. 

Aramco’s benchmark prices for Asia assume buyers lift cargoes from Ras Tanura, while those for Yanbu are negotiated privately.

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The much-longer Mediterranean route has emerged as a safer option after attacks by Teheran-backed Houthi militants on commercial vessels in Red Sea made shipments through Bab el-Mandeb chokepoint untenable, though some Chinese tankers carrying Saudi crude sailed through safely.

India’s state-run refiners are seeking a reduction of US$5 to US$10 a barrel for oil loaded at Sidi Kerir, against the official selling price for cargoes from Yanbu, the people said.

The processors are demanding discounts for cargoes already booked for August loading, as well as reductions in September official prices, which Aramco is due to announce next month, they added.

Selling oil from Sidi Kerir will increase costs for the kingdom too, as it will need to transport the crude from Yanbu through the Suez Canal or an inland pipeline.

Tensions in the Persian Gulf remain high.

On Tuesday (Jul 28), the US intercepted Iranian attack on its military bases in the region, ending a days-long pause in fighting. Iran-backed militias in Iraq and Yemen also carried out assaults on oil facilities in Saudi Arabia. Teheran has maintained that there’s no change to the status of Hormuz. BLOOMBERG