Saudi Arabia is offering its long-term oil purchase clients the option to receive their April quotas via the Red Sea port of Yanbu, preparing for prolonged disruptions to the Strait of Hormuz, Bloomberg reports, writes UNN.
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Buyers who chose Yanbu will only receive a portion of their monthly supplies due to limitations on the volume of oil that can be transported by pipeline to the port, traders informed by the state-owned company Saudi Aramco said. Another option is to receive oil from the Persian Gulf, but with the risk of being left without supply if the strait remains closed, traders said.
Aramco, the world's largest oil exporter, shipped 7.2 million barrels of oil per day last month before Iran effectively blocked the Strait of Hormuz, most of which was exported through its Persian Gulf terminals of Ras Tanura and Juaymah. Saudi Arabia has a 5 million barrels per day pipeline running across the country to the Red Sea, although export capacity at Yanbu may be lower.
Aramco declined to comment.
Saudi Arabia typically sells all its oil under long-term contracts, most of which goes to Asia. Sinopec, China's largest refiner, is cutting refining volumes by 10% to cope with the shortage, while Japan has begun releasing oil from its national reserves.
The choice reflects uncertainty about how long the conflict in the Middle East will last and when the Strait of Hormuz might reopen, the publication writes. US President Donald Trump's explanations for the reasons for the US war make allies and adversaries question when he will try to end it, and even if he does, Iran shows little willingness to compromise, the publication notes.
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If the war continues, traders said that oil shipped to Yanbu and destined for Asia would likely be sold on a delivered basis, meaning Aramco would handle transportation logistics, rather than on the usual free-on-board terms where customers arrange their own shipping. They said that the oil offered by refiners via Yanbu is only Arab Light crude.
Aramco has been increasing shipments via Yanbu since the war began, now in its third week. The Saudi producer also took the unusual step of offering oil shipped from the port through spot tenders. However, it is now offering contractual deliveries from the Red Sea terminal.
Outside Asia, some European refiners reported receiving smaller contractual volumes of oil from Aramco. One major refiner received no volumes for shipment next month, and another was allocated less than requested, the publication writes.