Saudi Arabia began discounting crude oil for the first time in six years as crude shipments through the Strait of Hormuz normalized following a U.S.-Iran end-of-war agreement.
On the 6th (local time), Bloomberg News said Saudi state oil company Aramco, in a price list released that day, cut the price of Arab Light for August delivery by $11 per barrel. As a result, Arab Light was set at $1.5 per barrel below the regional benchmark, the Oman/Dubai average.
Arab Light accounts for the largest share of Saudi crude exports. With many refining facilities in Korea, Japan and China designed for it, Asian refiners are expected to benefit from the price cut.
This is the third time Arab Light has been sold at a discount, following the 2015 output race to counter U.S. shale oil and the 2020 output and price-cut competition with Russia during the COVID-19 crisis. The size of the cut is the largest on a monthly basis since 2000.
The price cut is seen as the result of intensified competition among oil producers as supply pressure in the physical market grew with the normalization of the Strait of Hormuz. In recent weeks, Brent futures, the international oil benchmark, gave up all gains from the conflict.
Some say Saudi Arabia could lower prices further, arguing that Saudi crude remains more expensive than supplies from other regional producers available for immediate purchase.
Bloomberg News said, "Saudi Arabia sharply cut prices for its flagship crude sold to Asia, and maritime traffic through the Strait of Hormuz has recovered," and added, "As signs grow that the global supply glut is worsening, oil prices continued to fall."