Saudi Arabia is reportedly in talks with Indian oil buyers to begin shipping crude exclusively on the Middle East supplier’s own VLCCs in an effort to cut the cost of cargoes.
Saudi Arabia, the world’s largest crude exporter, won’t sell its oil at a discount to its official selling price, but may pass on the benefit of lower shipping costs, according to people with knowledge of the matter.
Speaking to Bloomberg, they asked not to be identified because the talks are confidential.
Saudi officials expect the use of tankers owned by Saudi Arabia to reduce the cost of its supplies by 25 to 30 US cents a barrel, according to two officials at two Indian refiners.
Saudi Arabia selling its supply to India on a delivered basis, meaning shipping costs are included in the price paid by the buyer for the cargo, is expected to help Saudi Aramco compete in a market where prices are already very low.
The Middle East nation typically sells its crude on a free-on-board basis, where the buyer arranges freight. Saudi Aramco sells its crude to Asia at a monthly differential to the average of the Dubai and Oman grades.
“The main obstacle for Saudi Aramco is that it issues its OSPs before others in the region so no matter what discount it gives others can always sell at lower prices,” says Kamel al-Harami, an independent industry analyst.
“The only way to fix this situation is by giving sweeteners or indirect discounts such as crude delivery to customers,” the former chief executive officer of Kuwait Petroleum International added.
