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August differentials provide insight into Aramco oil pricing

Hydrocarbon Engineering,

In a recent press release, the US Energy Information Administration (EIA) explains that Saudi Aramco sells its oil to long term customers at an official selling price (OSP). Saudi Aramco adjusts the OSP monthly based on specific conditions in different regions of the world.

For example, refiners in the US that import Arab Light crude oil this month will expect to pay the Argus Sour Crude Index (ASCI) price plus a differential of +US$ 3.65/bbl. While differentials to the US have not changed from July to August, Aramco has reduced its differentials for other destinations, especially Europe.

According to Arab Oil & Gas, these reductions reflect the anticipated reopening of the Ras Lanuf and Es Sider terminals in Libya, which could increase that country’s crude oil exports by 500 000 bpd. EIA explains that they also reflect the intention for Saudi oil to remain competitive in southern European markets.

Saudi Aramco’s OSP is calculated on a differential to a crude benchmark based on destination and crude quality, taking into account product yields and local market conditions. Each month, Saudi Aramco publishes these differentials, which determine the OSP for the following month.

  • Asia: For crude oil exported to Asia, the OSP is a differential to the average of Dubai and Oman crude prices published by the pricing agency Platts.
  • Europe: Crude oil exported to Europe and the Meditterranean has an OSP based on the Brent weighted average (BWAVE) published by IntercontinentalExchange.
  • US: Crude oil exported to the US has an OSP based on the Argus Sour Crude Index (ASCI), which is a price index based on crude oil produced from oil fields (Mars, Southern Green Canyon, and Poseidon) in the US Gulf Coast.

According to the EIA, in 2013, Saudi Arabia produced 9.7 million bpf of crude with a total liquefied fuels production of 11.6 million bpd, ranking it the second largest producer in the world after the US. Saudi Arabia exported more than 1.3 million  bpd of oil to the US in 2013, which represented 17% of total US crude oil imports.

Adapted from a press release by Emma McAleavey.

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