Saudi Arabia Cuts Crude Oil Prices for Asia: Will Petrol-Diesel Prices in India Be Cheaper Now?

Saudi Arabia has surprised the oil market by cutting the price at which it sells crude to Asian buyers for November.

This was revealed on Monday, October 5, and could bring some relief to oil-importing countries like India, though how much of it reaches ordinary consumers is still unclear.

Every month, Saudi Aramco, the country's state oil company, announces an official selling price, or OSP, for the crude it sells under long-term contracts.

Instead of a fixed price, the OSP is a discount or premium to a regional benchmark. For Asia, that benchmark is the average of Oman and Dubai crude prices.

For November, Aramco set the price of its flagship Arab Light crude at $5 a barrel below that benchmark. That is $3 lower than October's discount and the widest since June 2020.

Traders had expected a price hike, so the cut came as a surprise. Heavier grades, Arab Medium and Arab Heavy, were also cut by $5 a barrel for Asia.

At the same time, Aramco raised prices by $3 a barrel for buyers in northwest Europe and the Mediterranean. Prices for the United States were left unchanged.

Reason Behind the Price Cut By Saudi Arabia

Refiners in Asia told Reuters that the cut is partly to make up for higher shipping costs. Freight rates and insurance have risen because of the conflicts in West Asia, including tensions around Yemen and the Red Sea.

Impact On Indian Fuel Prices

India imports most of the crude it uses, so cheaper Saudi oil is welcome news for Indian refiners. A lower OSP reduces the cost of each barrel they buy from Saudi Arabia.

But the benefit may not be that big because part of the cut simply makes up for the higher freight and insurance costs, the final price refiners pay may not fall by the full $3 to $5 a barrel.

Oil prices moved only slightly on the news, with Brent crude slipping toward $101 a barrel today.

Will petrol and diesel get cheaper?

Not necessarily, since fuel prices in India are dependent on many factors, including global crude prices, the rupee, taxes and company pricing decisions. A lower Saudi OSP is one positive factor, but it does not by itself guarantee cheaper petrol or diesel.