Saudi Arabia Cuts July Oil Prices to Asia Amid Decades-Long Price Sustainability

Saudi Arabia Cuts Crude Price for Second Straight Month Amid Ongoing Middle East Tensions

Saudi Arabia's state oil producer, Saudi Aramco, will lower the price for Arab Light crude to be sold in Asia next month by $6 a barrel to a premium of $9.50 more than the regional benchmark. This reduction is deeper than the $5 decrease expected by refiners and traders in a Bloomberg survey.

The decision to cut the price of Arab Light crude comes as global oil markets remain disrupted by the continued closure of the Strait of Hormuz. The Strait's closure has resulted in a drastic scaling back of production in the region, with fields being shut in and refineries slowing or halting operations. This has led to a significant reduction in crude exports, with Aramco diverting oil through a cross-country pipeline to the Red Sea port of Yanbu, allowing it to ship up to 70% of its pre-war exports while supplying crude to the country's west coast refineries.

Those refineries have been pumping out products such as diesel and jet fuel as Aramco seeks to capitalize on surged margins for refiners. However, the profit from turning crude into products has slipped as of the end of May, possibly reflecting declining demand as consumers deal with higher prices. Aramco traditionally prices its crude to shadow refiners' profits, which may explain its decision to cut official prices for July.

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The OPEC+ producers group, led by Saudi Arabia and Russia, decided to raise production targets for July by 188,000 barrels a day at a meeting on Sunday. While this increase is largely symbolic given the ongoing closure of the Strait of Hormuz, it indicates that the group will not restrict members from pumping oil onto markets once the Iran conflict is resolved.