Saudi Aramco seeks to woo back Asian refiners

Saudi Arabia's decision to keep its latest official formula prices largely unchanged presents an opportunity for Riyadh to regain lost market share in Asia.

State-controlled Saudi Aramco surprised its customers by keeping its March-loading export prices mostly unchanged (see graph). Many refiners in Asia-Pacific had expected a price hike following a steepening of the backwardation on Mideast Gulf benchmark Dubai in January, as firm demand buoyed prompt values relative to forward prices. Aramco had already sharply reduced its official prices for February, with the cuts at the higher end of customer expectations. The price adjustments are seen by some market participants as an attempt by Riyadh to regain market share for its crude, most notably in China and India.

Aramco set its official prices above market expectations on at least four occasions last year, looking to discourage buying because of Riyadh's deepening Opec+ production cuts. This prompted some Asian buyers to trim imports. China's crude imports from Saudi Arabia fell to an 18-month low of 1.41mn b/d in December, because of the uncompetitiveness of Saudi export formula pricing. Refiners in China and India instead stepped up imports of cheaper Russian crude, eroding Aramco's market share. Saudi Arabia's share of Indian crude imports fell to 16pc last year, from 19pc in 2022, while Russia's market share rose to 39pc, from 17pc over the same period, according to analytics firm Vortexa. Saudi Arabia's share of Chinese crude imports edged down to 15pc, from 17pc in 2022, customs data indicate. Russia's market share climbed to more than 19pc, from 17pc, over the period.

Iranian crude that is subject to sanctions and rising production from the Americas have also been making greater inroads into Asia.

Aramco's Chinese customers appear to have responded favourably to Aramco's price adjustments by lifting their March term crude nominations. Buyers in China were scheduled to receive a combined 1.58mn b/d of March-loading Saudi crude, an increase of 250,000 b/d compared with February.

Indo-European routes

Aramco may receive a further boost from its Indian customers. Indian buyers were also scheduled to receive all of their requested volumes for March, although full details were slow to emerge. Aramco might even have had the Indian market in mind rather than the Chinese when it opted to ensure the competitiveness of its exports. India has become the main recipient of seaborne Russian exports, taking a peak of 2.26mn b/d in May last year. But demand has waned as tighter US enforcement of sanctions on Russian oil trade and attacks on shipping in the Red Sea have pushed up shipping costs. At least one Indian refiner had expressed its intention to nominate higher March term volumes from Aramco, although a second said most Indian customers were likely to nominate their monthly contractual volumes without requesting additional supplies. Buyers may be wary of the financial effect of storing excess inventories, given the conclusion of the Indian financial year at the end of March, another refiner said.

Aramco also went against market expectations in leaving its March official prices for northwest European and Mediterranean buyers unchanged. One refiner had anticipated an increase, so viewed Aramco's decision as generous, and has nominated full contractual volumes. Aramco's aim was possibly to increase its market share in Europe at a time of disrupted Mideast Gulf flows to the region because of the attacks in the Red Sea. Aramco's ability to supply crude from Sidi Kerir in Egypt offers European buyers greater reassurance over the reliability of its deliveries. Other refiners expressed discontent that prices were not cut as they still face higher freight rates even if their supplies come from Egypt.

By Fabian Ng, You Liang Chay and Kuganiga Kuganeswaran

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