Saudi Arabia has started offering long-term oil buyers the option of receiving part of their crude supply through a Red Sea port as disruptions continue in the Strait of Hormuz, reported Bloomberg.
The move comes as the key shipping route faces uncertainty due to the ongoing conflict in the Middle East. The Strait of Hormuz is one of the most important passages for global oil shipments, and any disruption there can affect supply across many countries.
Saudi Arabia is now giving its long-term customers the option to receive their April oil allocations through the Red Sea port of Yanbu instead of the usual Persian Gulf terminals.
LIMITED SUPPLY THROUGH RED SEA PORT
According to the report, buyers who choose to receive oil through Yanbu will only get part of their monthly supply.
This is because there are limits on how much oil can be transported through the pipeline that carries crude across Saudi Arabia to the Red Sea port.
Traders who have been informed by state-run Saudi Aramco said the pipeline has capacity limits, which means not all contracted oil can be delivered through this route.
Customers have another option to receive their supply from the Persian Gulf as usual. However, that comes with the risk that shipments may not arrive if the Strait of Hormuz remains closed.
The traders spoke on condition of anonymity because they are not authorised to speak publicly to the media, Bloomberg reported.
ARAMCO SHIPMENTS BEFORE THE DISRUPTION
Saudi Aramco, the world’s largest oil exporter, had been shipping about 7.2 million barrels of crude per day last month before the Strait of Hormuz was effectively blocked by Iran.
Most of these shipments were exported from the company’s major Gulf terminals at Ras Tanura and Juaymah.
Saudi Arabia also has a pipeline that can transport up to 5 million barrels of crude per day across the country to the Red Sea.
However, the actual export capacity at the Yanbu terminal may be smaller than the full pipeline capacity, which limits how much oil can be shipped from there..
ASIAN BUYERS MOST AFFECTED
Saudi Arabia usually sells most of its oil through long-term contracts rather than spot deals.
A large share of these long-term supplies goes to Asian countries.
The supply disruptions are already affecting refiners in the region.
Bloomberg reported that Sinopec, China’s largest refiner, has started cutting its refinery run rates by about 10% as it deals with supply shortages.
Japan has also begun releasing crude oil from its national reserves to manage the situation.
UNCERTAINTY OVER HOW LONG DISRUPTIONS MAY LAST
The alternative supply options show that there is still uncertainty about how long the conflict in the Middle East could continue and when the Strait of Hormuz might reopen.
According to Bloomberg, changing explanations from US President Donald Trump about the reasons behind the war have also created uncertainty about when the conflict might end.
Even if the war stops, Iran has shown little sign that it is ready to reopen the shipping route immediately.
CHANGES IN HOW OIL MAY BE SOLD
If the conflict continues for a longer period, oil shipments from the Red Sea port could be handled differently than usual.
Traders told Bloomberg that crude loaded at Yanbu and shipped to Asian buyers may be sold on a delivered basis.
This means Saudi Aramco would arrange the shipping and logistics instead of customers organising transport themselves.
Normally, Saudi oil is sold on a loading basis, where buyers handle the shipping after the cargo is loaded.
The traders also said that the oil currently being offered through Yanbu is only the Arab Light crude grade.
ARAMCO INCREASING USE OF YANBU PORT
Saudi Aramco has already increased shipments through the Yanbu port since the conflict began, which is now in its third week.
The company has also taken the unusual step of offering crude from the port through spot market tenders.
Now, according to Bloomberg, Aramco is also offering contracted supplies through the Red Sea terminal.
Beyond Asia, some refiners in Europe have also started seeing changes in their supply allocations from Saudi Arabia.
Bloomberg reported that some European processors have received smaller volumes than requested under their contracts.
One major refinery reportedly received no oil allocation for loading next month, while another refinery was given less supply than it had asked for.
These developments show how the disruption in the Strait of Hormuz is starting to affect oil flows and refinery operations across different regions.
