Saudi Aramco Slashes November Oil Prices for Asia to Six-Year Low as Iran War Drives Up Freight Costs
Arab Light discount is the widest since 2020 as buyers face record tanker rates and Hormuz attacks
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File photo: An oil tanker takes on crude at Iraq's Al Basrah Oil Terminal in the Persian Gulf (2005). Photo: U.S. Navy / Photographer's Mate Airman Eben Boothby, Public domain, via Wikimedia Commons
Saudi Arabia has unexpectedly cut the price of its oil for Asian buyers to the lowest level in six years, as the US-Israeli war on Iran keeps tanker costs at record highs and disrupts shipping through the Strait of Hormuz.
State oil company Saudi Aramco set the November official selling price for its flagship Arab Light crude to Asia at $5 a barrel below the average of Oman and Dubai prices, down $3 from October, according to a pricing document seen by Reuters on Monday. Reuters data showed the discount is the widest since June 2020.
A surprise move for the market
The cut went against expectations. A Reuters survey had pointed to a $3 a barrel increase, in line with gains in Middle Eastern benchmarks, while traders and refiners polled by Bloomberg had expected a $5 rise, The National reported.
Aramco also cut the November prices of its heavier Arab Medium and Arab Heavy grades for Asia by $5 a barrel. In contrast, it raised prices for north-west Europe by $3 a barrel across all grades and kept prices for buyers in the United States unchanged, Reuters reported.
Freight costs and the war
Three Asian refining sources, who spoke to Reuters on condition of anonymity, said the cuts appeared aimed at compensating buyers for elevated freight costs. According to LSEG data cited by Reuters, booking a very large crude carrier to move two million barrels from the Gulf to China cost $1.2 million a day on 2 October, compared with about $80,000 a day a year ago.
Sources told Reuters last week that Aramco had been looking at discounts for oil loaded off Oman to compensate buyers for record freight rates, as it tries to protect its market share after the war hit exports.
Since September, Aramco has sold millions of barrels through ship-to-ship transfers outside the Strait of Hormuz, Reuters said. The kingdom also resumed loading at Yanbu on the Red Sea after a brief suspension when a drone attack shut its key East-West pipeline.
Exports recover as prices ease
Middle East oil shipments have been recovering despite continued attacks on vessels. JPMorgan said last week that Middle Eastern oil shipments "had reached 98 per cent of prewar levels", Bloomberg reported, according to The National.
Oil prices slipped on Monday, with Brent crude at $101.90 a barrel by 0115 GMT, Reuters reported, after G7 countries agreed on Friday to release 100 million barrels of diesel and crude from emergency reserves.
"The G7 decision to tap strategic reserves is taking some of the immediate supply anxiety out of the price," said Tim Waterer, chief analyst at KCM Trade, according to Reuters.
