Saudi Aramco slashes oil prices in Asia as virus causes demand shock

Saudi Arabia’s state oil company made deep cuts to the price of crude it sells to Asia, where an outbreak of the coronavirus has caused a slump in demand.

Saudi Aramco lowered most of its official selling price differentials for the crude varieties it sells in the world’s largest consuming region, effectively making them cheaper. One exception was – Arab Heavy – which was kept unchanged. All grades to the US were cut from a month earlier while European refiners were to be charged more.

Like every other producer, Saudi Arabia is assessing the impact of a virus that’s helped to wipe out about 20 per cent of oil consumption in China, the nation that for years has been the engine of global economic growth.

The Middle East country’s official selling prices, as the differentials are known, were boosted sharply at the start of this year for certain grades as new rules kicked in that forced the world’s ships to burn lower-sulfur fuels.

The decision-making process for March shipments was probably complicated by the fact that oil refiners’ margins – a metric that influences many exporters’ pricing decisions – edged up last month for some plants processing Saudi crude.

Despite the improvement, the kingdom also needs to consider wider market conditions. On that front, there have been signs that some traders are considering storing excess crude on ships, and prompt cargoes are being offered for sale as some customers ask to defer purchases due to the virus outbreak.

Aramco cut its official selling price differential for flagship Arab Light crude by 80 cents a barrel to a premium of $2.90 over the Middle East Oman-Dubai benchmark for March sales to Asia.

The reduction exceeded the estimates of six traders surveyed by Bloomberg, who had expected a 58-cent cut. Arab Heavy’s price was kept unchanged at 55 cents a barrel premium.