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Key takeaways
- Saudi Aramco has cut prices for Asian crude oil by 11 dollars per barrel to counter falling demand.
- Thanks to diplomatic breakthroughs, the Strait of Hormuz has reopened and Brent oil prices have fallen.
- OPEC+ members are now using their full production capacity now that the shipping restrictions have been lifted.
Confronted with falling market demand and increasing global competition, Saudi Arabia has implemented the largest price cut for Asian oil imports in more than a quarter of a century. According to data from Bloomberg, Saudi Aramco is reducing the price of its Arab Light grade for August by 11 dollars per barrel. With this adjustment, the oil price is 1.50 dollars below the regional benchmark, a measure that goes much further than the 8-dollar drop analysts had previously predicted.
Consequences of diplomatic breakthroughs
The decline in oil prices began in mid-June, after a ceasefire between Iran and the United States. Thanks to the diplomatic breakthrough, shipping through the Strait of Hormuz could resume, a crucial maritime corridor that had been largely impassable during the conflict.
As a result, Brent crude oil prices fell to around 72 dollars per barrel, returning to the level of February, before the outbreak of hostilities between the US, Israel and Iran.
Asian refineries facing surpluses
Asian refineries are currently facing a possible surplus as oil stocks from the Middle East increase sharply. To take advantage of the reopened shipping routes, Aramco has ramped up its exports via the Ras Tanura terminal to almost 90 per cent of pre-war volumes.
At the height of the conflict, the company was forced to reroute most of its shipments through the Yanbu facility on the Red Sea in order to bypass the blockade at Hormuz.
OPEC+ slightly raises production quotas
At the same time, the OPEC+ alliance, led by Russia and Saudi Arabia, has approved a slight increase in production quotas for August. While earlier production increases during the war were largely nominal due to logistical constraints, the resumption of traffic through the Strait of Hormuz now allows Saudi Arabia, Kuwait and Iraq to fully utilise their increased capacities. This shift suggests that the coalition is no longer limiting the output of its member states.
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