Oil fell as Saudi Arabia cut crude prices for Asian buyers in a sign that physical supplies are becoming more readily available as Middle Eastern exports recover. West Texas Intermediate futures fell 1.8% to settle near $89 a barrel, while Brent closed around $100. Open interest in the front-month contracts for both benchmarks has trended lower in recent sessions as traders attempt to side-step geopolitical-driven volatility stemming from the Iran war, contributing to exaggerated price moves.
Over the weekend, Saudi Aramco lowered the price of Arab Light to buyers in Asia to $5 a barrel below a regional benchmark for November as Persian Gulf producers race for market share with flows through the Strait of Hormuz increasing. That’s a six-year low and compares with a discount of $2 a barrel for this month. Traders and refiners had expected a $5 rise from October, a Bloomberg survey shows. Traders also parsed a stream of headlines on the status of Hormuz, one of the biggest points of contention in the US-Iran conflict. Axios reported that top cabinet members met at Camp David last week to discuss next steps in the war, and the conflict in Yemen, citing three US officials. Iranian state media reported that the country’s interior minister departed for Doha on Monday for talks.
Crude has rallied strongly this year after the US and Israel attacked Iran in late Febuary, igniting months of conflict in the Middle East and fanning inflation. Still, flows of oil have been recovering toward pre-war levels in recent weeks, although shipments of products remain constrained. In a bid to tame prices, the Group of Seven and its partners last week announced a further release of emergency stockpiles. Bullish risks endure. Yemen’s internationally recognized government launched a full-scale military campaign to recapture Houthi-held territory after weeks of escalating conflict between the Iran-backed group and Saudi Arabia, including targeting the kingdom’s energy infrastructure.
Iran, for its part, said the next “enemy mistake” against the country will bring “new fronts and greater surprises.” President Masoud Pezeshkian said negotiating with the US “makes no sense.” And investors are wary that an increasingly cornered Iran – the oil revenue-dependent nation loaded no crude oil onto tankers last month – could respond by intensifying the conflict. “With a comprehensive Iran-US agreement still appearing unlikely, we continue to expect sizable volatility across both crude and refined products,” said Bart Melek, global head of commodity strategy at TD Securities. At the same time, the oil stockpiles that cushion the world from supply shocks have become “scarily thin,” putting markets at risk of worsening unless Hormuz reopens, Saudi Aramco Chief Executive Officer Amin Nasser said at the Energy Intelligence Forum in London on Monday. “While the squeeze on crude is serious, refined fuel prices have risen even more sharply.”
Saudi Price Cuts
Saudi Aramco’s so-called official selling prices – which set costs for crude sold under long-term contracts to refiners – have been exceptionally volatile since the outbreak of the Iran war in February. In the initial stages of the conflict, when passages through the Strait of Hormuz collapsed, the OSP for sales to Asia was set at a record premium of $19.50 a barrel. While flows through the waterway have since picked up, risks to shipping remain acute, with a flurry of attacks in recent days. Among the latest, the UK Maritime Trade Operations said a tanker transiting the Hormuz was instructed by Iran on Monday to turn back or it would be targeted. A separate incident was also reported off Yemen’s Al Mukha in the Red Sea.
In Yemen, key to the fighting will be control over the country’s strategic western coastline toward the Bab el-Mandeb chokepoint. A recent push by the Houthis saw them take control of the area, raising risks for Saudi shipping along a route that’s been a key workaround to shipments via Hormuz. “Emergency releases and the Saudi price cut, which I mostly read as an attempt to build market share, are weighing on prices,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank. “It does not change the fact that shipments through the Strait of Hormuz has picked up but remains volatile and exposed to disruptions.”
Elsewhere, major OPEC+ nations agreed at the weekend to keep production quotas unchanged next month, in line with an existing output roadmap. The Iran war has blunted the impact of the group’s decisions because supply in some members remains below levels pumped before the conflict. Stronger-than-expected flows and the emergency releases are weighing on prices, but supply risks remain elevated, according to Soni Kumari, a commodities strategist at ANZ Group Holdings Ltd., who cited Aramco’s OSP move among factors. Prices are seen between $95 and $100, with escalation potentially pushing them back toward a recent high of $110, she said.
Oil Prices
- WTI for November delivery fell 1.8% to settle at $89.43 a barrel.
- Brent for December settlement dipped 1.9% to settle at $100.32 a barrel.