Saudi Aramco slashed its official selling prices for Asia by $11 per barrel in August, a decision that underscored deepening concerns over a global crude supply glut as regional production recovers faster than demand, Kpler strategists said in a note on Tuesday.
Muyu Xu, senior Crude Oil Analyst at Kpler, said the sharp reduction, which sets the flagship Arab Light grade at a discount to the Oman/Dubai average for the first time since December 2020, highlights the intensifying competition for market share among Middle Eastern producers.
However, despite the deep cuts, traders note that Saudi crude remains priced above spot offers from regional rivals, including the UAE, Qatar, and Iraq.
Xu said Aramco's price cuts reinforce market concerns about oversupply and the potential for a price war, as Middle Eastern supply is recovering faster than demand.
The supply surge is broad-based. Kpler data shows that non-Iranian crude shipments from the Persian Gulf climbed to 8.55 million barrels per day in July, up from 2.1 million b/d in May, as terminal operations normalize and producers use infrastructure to bypass Hormuz.
Total non-Iranian exports from the region reached 14.3 million b/d this month, nearing pre-war levels.
Though supply is rapidly returning to the market, demand recovery remains uneven.
Kpler said that outside China, Asian crude intake has stabilized at about 95% of pre-war levels, leaving little room for significant growth beyond modest inventory restocking, estimated at 200,000 to 300,000 b/d.
Meanwhile, the market's focus has shifted to China, the world's largest importer, where seaborne crude demand has lagged at 6-7 million b/d in recent months, below the 10 million b/d seen prior to the regional conflict.
While China's independent refiners have begun increasing spot market purchases as margins improve, Kpler analysts said that this represents a competitive shift rather than a surge in new demand.
Buyers are increasingly swapping out Iranian barrels, which have recently become uncompetitive, for cheaper, non-sanctioned alternatives.
Xu said it remains to be seen how much of the incremental demand will ultimately shift toward non-Iranian and non-Russian grades, as sellers of sanctioned crude are expected to lower prices to regain market share.
Refinery run rates in China are projected to see a measured recovery, rising to 14.2 million b/d by September, but experts said this growth is insufficient to materially tighten the regional balance in the near term.
Though Chinese seaborne demand is not expected to return to 10 million b/d until early Q4, the market remains braced for further volatility, suggesting that Saudi Arabia's latest price adjustments may be only the beginning of a prolonged battle for the Asian market.