Saudi Aramco has reduced its August price differentials for destinations outside the US, especially Europe. These reductions reflect the anticipated reopening of the Ras Lanuf and Es Sider terminals in Libya, which could increase that country’s crude exports by 500,000 b/d. They also reflect the intention for Saudi oil to remain competitive in southern European markets, according to the US Energy Information Administration after data from Arab Oil & Gas.
Like many such companies, Aramco sells its oil to long-term customers at an official selling price (OSP), which is adjusted monthly based on specific conditions in different regions of the world.
Aramco’s OSP is calculated on a differential to a crude benchmark based on destination and crude quality, taking into account product yields and local market conditions. These differentials, which determine the OSP for the following month, are published each month by Aramco.
Crude oil exported to Europe and the Mediterranean has an OSP based on the Brent Weighted Average published by Intercontinental Exchange. For crude oil exported to Asia, the OSP is a differential to the average of Dubai and Oman crude prices published by the pricing agency Platts. Crude oil exported to the US has an OSP based on the Argus Sour Crude Index (ASCI), which is a price index based on crude oil produced from oil fields (Mars, Southern Green Canyon, and Poseidon) in the US Gulf Coast.
Refiners in the US that import Arab Light crude oil this month will expect to pay the ASCI price plus a differential of +$3.65/bbl, which have not changed from July to August.
In 2013, Saudi Arabia produced 9.7 million b/d of crude oil with a total liquid fuels production of 11.6 million b/d, ranking it the second-largest producer in the world after the US. Saudi Arabia exported more than 1.3 million b/d of oil to the US in 2013, representing 17% of total US crude oil imports, according to EIA data.