Saudi Arabia’s oil sales to Asia’s two biggest importers are set to come in at lower-than-usual levels next month, as the war raging across the Middle East disrupts supplies from the energy powerhouse.
Saudi Aramco, the world’s top exporter, is due to ship about 40 million barrels of crude to customers in China in April, according to traders familiar with the matter. That’s lower than usual—exports were set at 48 million barrels in February. Flows to buyers in India are also set to come in lower.
The global oil market has been upended by the conflict between the US, Israel and Iran, which is nearing the one-month mark. Crude has spiked as Tehran launched attacks against energy infrastructure across the region and also forced the near-total closure of the Strait of Hormuz, the waterway that links the Persian Gulf to global markets, including Asia’s largest economies.
The prospect of lower crude volumes going from Saudi Arabia to some of its principal buyers highlights the growing economic fallout from the war, with importers facing higher costs, as well as a need to source alternative barrels.
BlackRock Inc. President Rob Kapito warned on Thursday that investors may be underestimating the risks stemming from the Iran war, which are likely to hurt economic growth and boost inflation even if the conflict were to end soon.
The disruption at Hormuz prompted Saudi Aramco to reroute some crude supplies, channeling a portion of production via a pipeline across the Arabian peninsula to the alternative port of Yanbu on its Red Sea coast. However, the ambitious measure is only a partial workaround.
Yanbu has an export capacity of around 5 million barrels a day. That’s lower than the 7.2 million barrels a day shipped last month before the war, mainly from facilities within the Persian Gulf. The oil that the Asian refiners are being offered via Yanbu is only the Arab Light grade, the traders said.
For India, exports were set at roughly 23 million barrels for next month, the traders said, asking not to be identified due to the sensitivity of the matter. That’s also slightly lower than recent months. Flows in February were seen at 25 million to 28 million barrels, according to Kpler Ltd. and Vortexa Ltd.
Earlier, Saudi Arabia had given long-term oil customers the option of receiving their so-called allocated supply from Yanbu, instead of from within the Persian Gulf. Meanwhile, at least two European refiners had their April-loading volumes cut, with one of them receiving nothing at all.
Aramco didn’t respond to a request for comment.
Brent crude futures traded about 2% higher above $104 a barrel on Thursday. The global oil benchmark was near $72 a barrel before the outbreak of the war.