New Pricing Strategy in Store for Saudi European Refiners
Industry

New Pricing Strategy in Store for Saudi’s European Refiners

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Change is in the air when it comes to pricing of Saudi Aramco’s oil for its refining customers in Europe after the Kingdom’s state-run firm announced changes on April 4 to its current setup. The official change will take place beginning in July, with the expectation being that it will be a customer-friendly option for those businesses to better prepare for the uncertain prices that are likely over the next few years.

Specifically, the change deals with the benchmark price charged to refiners within Europe, with the prior method focusing on the benchmark that was based on Brent trades and averaged on a daily basis. Now, the ICE Brent Settlement will base that price on the one-day closing price of oil, which will be offered to not only customers in Europe, but also Latin America and Africa.

The benefits that customers will receive allows them to make purchases that narrow the hedging process, previously a virtual impossibility. Not surprisingly, that led to complaints from those companies and with oil prices continuing to stagnate, enhancing customer relations was one of the few ways that Saudi Aramco could ensure the continued stability of those customers.

The reason for those complaints stemmed from the fact that volume changes over the course of a single day resulted in companies having to make countless buy and sell decisions. The fees for such were amounting to a costly tax that was becoming much less appealing with each passing month.

The Saudis are following in the footsteps of neighboring Kuwait, which had previously adopted this strategy. Still clinging to the old method was one of the Kingdom’s chief rivals, Iran, though the expectation is that the Iranians will quickly follow suit. That assessment is based on past actions which tend to match Saudi intentions.

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