Aramco is selling Europe spot oil below its own price, weeks after cutting those refiners off

Saudi Aramco is offering European refiners extra crude for late October and November loading, and some of the October spot cargoes are priced below the company's own official selling price, according to OilPrice.com, which cites Bloomberg's reporting (Bloomberg, paywalled; we read the headline). The cargoes load from Yanbu on the Red Sea or from Sidi Kerir on Egypt's Mediterranean coast.

The reversal is the story. Earlier this month Aramco told European customers their contracted October cargoes would not come after an attack shut the East-West pipeline. Refiners went to the spot market for replacements. Now the pipeline is running again and, per the same report, those customers are being told they will get their full contracted November volumes.

What "discount" means here

It is easy to misread. The cut is against Aramco's official selling price, the list price it sets for each region, not against where Brent trades. With Brent and WTI both still above $100 on the Chronicle's markets page (WTI near $101 at 2:51 p.m. ET), nobody is getting cheap oil. A refiner is paying a little less than Aramco asked for the same barrel, for cargoes that load within weeks.

It also tells you about the pressure on the seller. A producer discounting prompt barrels is a producer that has barrels to move. Traders told Bloomberg the extra Saudi supply has already pulled down prices for some European crude grades this week.

The size of the gap it fills

OilPrice reports Saudi Arabia normally ships 700,000 to 800,000 barrels a day to Europe. Over a 30-day month that is 21 million to 24 million barrels. At roughly $110 a barrel, a figure we use only to size the flow, that is about $2.3 billion to $2.6 billion of crude a month. That is the volume European refiners had to replace in October, and the reason spot demand was strong.

The supply behind the offers is real. The kingdom lifted output by roughly a third in September to more than 8 million barrels a day, up from its lowest level in more than three decades in August, OilPrice reports, and other Gulf producers are also recovering. The International Energy Agency said the UAE has reached a record.

Who feels it first

• European refiners that bought expensive replacement cargoes in October now have a cheaper prompt option, and a firm November allocation.
• Fuel distributors and fleets are further down the chain. Pump and diesel prices follow crude with a lag of weeks, so any relief would show up late and only if crude holds lower.
• Traders holding October positions face the quickest repricing: spot discounts feed straight into physical differentials.

What this does not settle

The same report notes Iranian attacks on regional energy infrastructure and on vessels near the Strait of Hormuz are continuing. We have separately reported that the Houthis claimed, without confirmation, new strikes on the same pipeline. If that route is hit again, the offers can disappear as quickly as they appeared. Our earlier look at the Yanbu route is here.

What to watch: whether the discounts widen into November, whether Aramco's next official selling price for Europe comes down, and whether Brent holds the drop from its Oct. 23 high. For owners with fuel exposure, this is a reason to keep hedging and pricing decisions flexible rather than assume relief. See our crude oil chart for the live picture.

Sources: OilPrice.com (full text, citing Bloomberg); Bloomberg and Investing.com headlines; Chronicle markets page; Yahoo Finance futures data. Volume arithmetic is the Chronicle's, using the reported 700,000 to 800,000 barrels a day. This is market information, not investment advice.