Saudi Arabia oil cut: Saudi Aramco reduces crude prices for October amid weak manufacturing in Asia

Saudi Arabia’s state-owned oil giant, Saudi Aramco, has reduced its October pricing for Arab Light crude oil, signalling concerns over the future of oil demand in its key Asian market. According to a new price list released on Friday, Saudi Aramco has cut the price of its Arab Light crude by 70 cents per barrel. This price reduction comes as global oil markets continue to struggle, with Brent crude prices falling further, reaching $71.49 per barrel—a $1.20 decrease for the day. This marks one of the lowest prices for Brent in years. This Saudi Arabia oil cut reflects ongoing challenges in the global oil market and a strategic response to weakened demand.

Saudi Aramco’s decision to cut prices extends beyond Asia, affecting the United States and Europe as well. However, the reduction for Asia, Saudi Aramco’s largest and most important market, highlights the company’s cautious outlook on the region’s oil demand. Official Selling Prices (OSP) for Asian buyers have now fallen to their lowest level in three years, reflecting concerns over sluggish manufacturing activity in China, one of the world’s largest oil consumers.

Despite this, China’s crude oil imports did see a rebound in August, with refiners increasing production to meet seasonal demand. However, Saudi Aramco’s pricing adjustments suggest that the company remains wary of long-term demand trends in Asia. The Saudi Arabia oil cut also follows a downward revision of oil price forecasts from Bank of America, which now projects Brent prices at $75 per barrel for 2025, down from an earlier forecast of $80. Meanwhile, the price forecast for WTI crude was adjusted to $71 per barrel, a reduction from the previous $75 estimate.

The ongoing weakness in Asian demand is also believed to be behind OPEC+’s decision earlier this week to delay its planned production quota rollback, which was initially scheduled for October. The delay, spearheaded by Saudi Arabia, extends the current production levels for another two months, allowing oil producers to stabilize the market. However, this move has not significantly impacted prices, as Brent crude continues to trade near the $70 mark.

Analysis

Political: Saudi Arabia’s decision to lower oil prices amid weakening demand in Asia underscores the kingdom’s influential role within the global oil market. The country’s leadership in OPEC+ continues to shape global production policies, with Saudi Arabia leading the charge in delaying production increases. The Saudi Arabia oil cut reflects a broader concern about the economic slowdown in China, which has significant political implications for Saudi Arabia. As China is the kingdom’s largest trading partner, maintaining strong economic ties with the region is critical. Should demand from Asia remain weak, Saudi Arabia may face additional challenges in balancing its economic interests with its long-term Vision 2030 strategy, which aims to diversify the economy beyond oil. This situation also raises questions about Saudi Arabia’s ability to negotiate with its OPEC+ partners, particularly when faced with diverging economic interests among member states, highlighting the impact of the Saudi Arabia oil cut on international negotiations.

Social: The reduction in oil prices for Asian buyers may have a ripple effect on various social sectors, particularly in oil-dependent regions. The global downturn in oil prices often translates into reduced revenue for oil-exporting nations like Saudi Arabia, which could result in budgetary adjustments impacting public services and social welfare programs. As the kingdom continues to push for economic diversification, lower oil revenues might slow down initiatives aimed at reducing youth unemployment and expanding the private sector. For consumers in oil-importing nations like China, lower oil prices could provide temporary relief by lowering energy costs. However, the underlying cause—economic weakness and slowing industrial production—could signal broader economic challenges for households in those regions.

Racial: The impact of Saudi Arabia’s oil price cut could extend to the broader Middle Eastern region, where racial and ethnic tensions often influence geopolitical dynamics. Countries like Yemen, Iraq, and Lebanon, which have strained relationships with Saudi Arabia, may feel the economic consequences of price fluctuations, particularly as many of these countries depend on remittances and financial support from the Gulf states. Meanwhile, reduced oil revenues in Saudi Arabia could affect migrant workers, many of whom come from Africa and South Asia. These workers are often employed in low-wage sectors that are vulnerable to economic downturns, and a prolonged period of low oil prices could threaten their livelihoods.

Gender: Saudi Arabia’s ongoing economic adjustments, including the recent oil price cuts, could have gender-related implications, particularly in terms of employment and economic participation. The Vision 2030 initiative has been promoting greater participation of women in the workforce, with private sector job creation playing a key role in this effort. However, the kingdom’s reliance on oil revenue to fund social programs and mega-projects suggests that a prolonged period of low oil prices could slow the pace of gender-related reforms. Should public spending be curtailed, sectors that have been instrumental in advancing women’s economic inclusion could see reduced support. On the other hand, lower oil prices might benefit women in oil-importing nations by reducing household energy costs, though the overall economic slowdown may dampen these gains.

Economic: The price cut by Saudi Aramco comes at a critical time for the global oil market, where concerns over weak demand, particularly from Asia, have taken centre stage. The recent fall in Brent crude prices to multi-year lows has raised alarms, with analysts pointing to China’s slowing manufacturing sector as a major contributor to the decline. Saudi Arabia’s decision to lower prices suggests that the kingdom anticipates further weakening in Asian demand, which could have far-reaching economic consequences.

For Saudi Arabia, oil remains the backbone of its economy, and sustained price reductions could strain the kingdom’s fiscal position, especially given its ambitious spending plans under Vision 2030. The kingdom has long relied on strong oil revenues to fund infrastructure projects, social programs, and public sector wages. With Brent crude trading at $71.49 per barrel, Saudi Arabia’s ability to maintain a balanced budget is at risk, particularly as it requires oil prices to stay above $96 per barrel to avoid a deficit.

At the same time, the price cut highlights the challenges facing the global oil market. The decision by OPEC+ to delay production increases underscores the cartel’s efforts to stabilize prices amid growing concerns about oversupply. However, even with the delay, the market continues to struggle, as evidenced by the ongoing decline in prices. This raises questions about the long-term effectiveness of OPEC+ production quotas in managing market volatility, especially in the face of economic uncertainty in China and other key regions.