Saudi Aramco announced that oil prices for May deliveries to Asian buyers will reach a record level, as reported by Bloomberg.
Reasons for the Price Increase
According to the agency, this price increase occurs against the backdrop of worsening conditions in the Persian Gulf and the effective closure of the Strait of Hormuz, which creates additional risks for global energy markets. The conflict and blockade of this strategically important passage have led to a more than 50% increase in Brent oil prices.
The main grade supplied to Asia, Arab Light, will rise by a record $17 per barrel. Thus, its price will be $19.5 per barrel higher than the average price of the Oman/Dubai oil basket, which is also an unprecedented level, considering that in April this spread was only $2.5 per barrel. Traders surveyed by Bloomberg expected an even higher increase in the premium for Arab Light, of about $40 per barrel.
This increase will also affect all other oil grades from the company for deliveries to Asia, even in cases where they do not pass through Hormuz. Oil prices for deliveries to other regions, such as the USA and Northwestern Europe, have also reached record levels.
The benchmark oil grades Dubai and Oman, on which Saudi Arabia bases its prices, became extremely unpredictable last month. Reduced oil supply volumes due to the conflict in the region caused significant price fluctuations, making the market less stable.
Asian oil refineries have begun to consider switching to the global benchmark Brent for indexing Saudi oil.
Logistics and Oil Export
Due to the ongoing conflict in the Persian Gulf and the effective blockade of the Strait of Hormuz, Saudi Arabia has been forced to redirect significant volumes of oil to the Yanbu port on the Red Sea, which is approximately 1,200 km from the usual loading port—Ras Tanura.
Despite this, Saudi Aramco continues to use the standard pricing scheme for oil shipped from Ras Tanura, which creates additional difficulties for buyers in calculating costs. The company also clarified that separate requests for oil volumes should be directed for each port, and only the Arab Light grade will be supplied from Yanbu.
Saudi Arabia and the UAE remain the only countries in the Persian Gulf with major export routes bypassing Hormuz. According to Saudi Aramco, the maximum capacity of the pipeline leading to the Red Sea is 7 million barrels per day, of which about 5 million barrels are exported, accounting for approximately 70% of pre-war supply volumes.
Additionally, the company’s CEO, A. Nasser, stated that Saudi Aramco has suspended most production of medium and heavy oil grades and focused on selling light and super-light grades from Yanbu.
