Saudi Arabia, the world's top oil exporter, slashed prices of all crude grades to Asian customers in October versus September, but left prices to northwestern Europe and the United States steady.
The deep price cuts come as lock downs across Asia to combat the highly infectious delta variant of the coronavirus have capped fuel demand in the region.
Global oil supplies are also increasing as the Organization of the Petroleum Exporting Countries (OPEC) and their allies, a grouping known as OPEC+, is raising output by 400,000 barrels per day a month between August and December, reports Reuters.
State oil giant Saudi Aramco lowered for the first time in four months the official selling price (OSP) of Arab Light crude for delivery to Asia in October to a premium of $1.70 per barrel versus the average of DME Oman and Platts Dubai crudes, according to a company pricing document.
The price differential in September was a premium of $3 per barrel, the highest since February 2020.
The $1.30 price cut for October versus September was the largest monthly reduction in a year, and it took the market by surprise as buyers had been expecting prices to drop 20-40 cents a barrel, in line with changes in Dubai benchmark prices.
The deep price cuts were likely to boost demand for Saudi crude, oil traders in Asia said.
"This is what Saudi wants," one of the traders said.
However, chances of Saudi Arabia engaging in another price war with other producers were slim, traders and analysts said.
"Demand is tentative. If they go down that route, they will reverse a lot of the inventory normalisation achieved over the past 12-18 months," Energy Aspects analyst Virendra Chauhan said.
Elsewhere, Saudi Aramco kept the price differential of light crude to northwest Europe unchanged, at a discount of $1.70 per barrel versus ICE Brent crude. It also kept the price differential of light crude to the United States unchanged at a premium of $1.35 per barrel versus ASCI.
