Saudi Aramco shifts Asia crude allocations as exports fall 30%

Saudi Aramco has shifted September crude allocations for some Asian term customers to an ad hoc basis, three sources familiar with the matter said, as Middle East hostilities cut the kingdom's export capacity to about 70 percent of normal volumes.

Aramco has kept exports near 5 million barrels per day, about 70 percent of normal volumes, chief executive Amin Nasser said. The company has leaned on its Red Sea terminal at Yanbu while its main Gulf facility at Ras Tanura operates below normal export levels.

The disruption has forced pricing adjustments across regions. Aramco cut the September official selling price for Arab Light by 50 cents per barrel, putting it at a $2 discount to the regional benchmark for Asian buyers. It raised prices for some Medium and Heavy grades headed to Asia, though those barrels typically load from the Persian Gulf, making the pricing largely theoretical until shipping improves. Prices for all grades to the United States, Northwest Europe and the Mediterranean were cut.

The ad hoc allocation handling points to persistent supply uncertainty for Asian refiners, who had already pushed Saudi Arabia for discounts to offset longer voyages around Africa and higher shipping costs. Brent crude has dropped to around $80 per barrel, down roughly 20 percent in two weeks, as traders bet that more Persian Gulf barrels may reach the market. But the U.S. Energy Information Administration warned that some Middle East producers are likely to struggle to restore output to pre-conflict levels by the end of 2027 even if trade patterns normalize by early next year.

Rerouting Options Narrow as Houthi Threats Persist

Houthi attacks around Bab el-Mandeb have made the Red Sea route unattractive, forcing Aramco to consider sending cargoes through Egypt's SUMED pipeline and loading them at Sidi Kerir on the Mediterranean. The rerouting adds cost and complexity. Asian refiners had already sought discounts to compensate for the longer voyage around Africa and higher shipping costs.

Iran says an agreement with Oman on an alternative shipping route through the Strait of Hormuz is in its final stages, a development that could ease some of the pressure. But previous attempts to boost traffic have run into renewed fighting and attacks on vessels. President Donald Trump said Wednesday the United States has "total control" over the Strait of Hormuz, though market participants remain skeptical given the ongoing disruption.

Asian Refiners Scramble for Alternatives

The uncertainty has pushed buyers to seek alternatives. TotalEnergies' trading arm Totsa is offering Iraqi crude for loading outside the Strait of Hormuz, three traders said Thursday, as continued disruption to shipping through the waterway deters buyers from lifting cargoes at Iraq's Basrah terminals. India's state-run refiners Hindustan Petroleum Corp and Mangalore Refinery and Petrochemicals Ltd are seeking up to a combined 6 million barrels of oil through spot tenders, documents show.

The last time Saudi exports faced a comparable supply shock was during the September 2019 attack on Abqaiq, when output was cut by 5.7 million barrels per day. Brent spiked more than 14 percent in a single session before normalizing within weeks. The current disruption has been more prolonged, with the EIA projecting that some Middle East output will remain shut through next year.

The ad hoc allocation system means Asian refiners face greater uncertainty in securing September volumes, potentially forcing them to pay premiums on the spot market or lock in alternative suppliers. If the Strait of Hormuz disruption persists, the $2 discount on Arab Light may not be enough to keep Asian buyers loyal, and Saudi Arabia risks losing market share to competitors offering more reliable supply.

This article is for informational purposes only and does not constitute investment advice.