Saudi Arabia is trying to lure buyers from European markets by changing the way it prices its oil in order to make it easier for hedging, Reuters reported on Tuesday, quoting industry sources.
As of July 1, the Saudis will begin pricing their oil sales to Europe against the ICE settlement for the Brent benchmark, instead of the Brent Weighted Average (BWAVE) that it has been using so far.
"The Saudis are switching to the settlement as BWAVE is difficult to hedge," an industry source told Reuters.
Following consultations with customers, the move will become effective July 1, Aramco said in a letter to customers obtained by Bloomberg.
That change in the way pricing is formed "is expected to provide substantive benefits, including allowing our customers to closely hedge crude purchases," according to the Aramco letter.
Saudi Arabia is not the only Middle Eastern producer to consider a tweak to the pricing method in a bid to make its oil more attractive to European buyers. Related: This Non-OPEC Member Just Called For An Extension Of The OPEC Deal
As of late 2015, state-run Kuwait Petroleum Corporation (KPC) began pricing its crude sales to Europe using dated Brent and abandoned the BWAVE-based pricing that Saudi Arabia and Kuwait had been following.
Iraq also prices its European exports against dated Brent, while Iran prices crude sales against BWAVE, but according to Bloomberg, Iran has replicated Saudi Arabia's pricing moves in the past.
While it is changing its pricing methods for Europe, Saudi Arabia is trying to keep its Asian market share intact amid the OPEC production cuts. The Saudis are likely to reduce the official selling price for their Arab Light crude grades bound for Asia in May, as they are faced with abundant supply of light oil in Asia and weaker demand amid some seasonal refinery maintenance.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More