70% of exports rerouted to the Red Sea! Saudi crude shipping lanes upheaval pushes premiums to record highs

Amid the escalating conflict in the Middle East and near-disruption of shipping through the Strait of Hormuz, international energy markets have experienced severe volatility. Against this backdrop, Saudi authorities announced a substantial increase in the crude oil premium sold to Asia, setting a new record for that pricing.

Leaked pricing documents show that Saudi Aramco’s core product —— Arab Light crude oil will have its official selling price to Asian refiners next month raised to a premium over the Middle East benchmark of19.50 USD/barrel.

Notably, this increase is significantly lower than market expectations. Several traders said that this round of pricing was much more difficult than usual: on one hand, the ongoing regional conflict has triggered violent swings in the regional benchmark; on the other, international oil prices fell noticeably at the end of last month. Multiple factors combined have made pricing judgments extremely complex.

The regional benchmark referenced by Saudi oil pricing consists of Dubai crude prices and Oman crude futures. Since last month, supply tightness in the physical crude market caused by the conflict has amplified volatility in this price combination, causing some distortion in the benchmark and further increasing pricing uncertainty.

Facing the disruption of the pricing mechanism, some Asian refiners have begun seeking alternatives,proposing to adopt the internationally mainstream Brent crude benchmarkas the pricing reference for Saudi crude.

At the same time, the Middle East conflict has alsofundamentally reshaped global crude oil transportation patterns. With the strategic Strait of Hormuz forced to close, the traditional transit routes for millions of barrels per day from Gulf producers such as Saudi Arabia have been cut off.

To ensure smooth crude exports,Saudi Arabia has shifted the bulk of its exports to the Yanbu port on the Red Sea coast, which is approximately 1,200 kilometers from Saudi Arabia’s traditional crude loading port Ras Tanura.

However, Saudi Aramco’s current official pricing still uses the Ras Tanura-based loading pricing system and has not been adjusted to reflect the change in loading port, introducing more variables into Asian buyers’ actual procurement costs.

Saudi Aramco has notified customers that they must formally declare liftings for different ports, and has made clear thatArab Light crude will be supplied only via Yanbu port.

Among the main Gulf oil producers, only Saudi Arabia and the United Arab Emirates have large-scale alternative export routes that can bypass the Strait of Hormuz.

Saudi Arabia’s pipeline connecting to the Red Sea is operating at full capacity,with a daily throughput of up to 7 million barrels, and current exports via Yanbu average nearly 5 million barrels per day, roughly 70% of Saudi crude exports before the conflict.

In a March 10 conference call, Aramco CEO Amin Nasser revealed the company has sharply reduced medium and heavy crude production, shifting production and export focus to Yanbu and concentrating on supplying light and very light crude.