Saudi Arabia cuts Asian crude price by as much as $11 a barrel as Hormuz traffic resumes

Saudi Arabia cut its official selling price for crude to Asian buyers by as much as $11 a barrel, the deepest cut in years, and other Gulf exporters are cutting deeper still. US fuel buyers should be paying attention. When the world's swing producer discounts that hard and the Strait of Hormuz reopens at the same time, the pressure on the crude benchmark is downward, which could ease wholesale gasoline and diesel costs later this summer if it holds.

Hormuz reopens

Traffic through the strait is recovering. Two Japanese-owned VLCCs, operated by Nippon Yusen KK and Kawasaki Kisen Kaisha, are moving 4 million barrels of Saudi crude toward Japan after sitting stuck since March 1, when Iran shut the waterway. India's Mangalore Refinery and Petrochemicals, a 300,000-barrel-a-day plant, chartered a tanker to load Iraqi crude, the first state refiner to book a Hormuz cargo since the blockade. Barrels that sat in the Gulf for four months are now looking for buyers, which is why the discounts are so steep. Reuters reported the Saudi term cuts as the deepest in years, and buyers can push for steeper discounts right now.

For a US jobber, this matters through the front-month crude price. Softer Gulf crude and freer shipping tend to pull Brent and WTI down, and that feeds the rack a few weeks out. The 3:2:1 crack could widen if crude falls faster than product, which would help refiner margins before it helps the pump.

Russian refinery strikes

Cutting the other way: Ukraine's SBU said its Alpha Group ran 13 long-range strikes over the past week, part of a 40-day campaign, hitting refineries as far as 850 km inside Russia and Baltic oil terminals. Drones struck the Omsk refinery, Russia's largest, and fuel queues were reported across the Omsk region afterward. Lost Russian refining capacity pulls diesel and gasoline out of the global pool. It does not hit the US rack directly, but it firms product cracks worldwide, and a tighter diesel market abroad can keep US diesel from following crude down as fast as operators would like.

China teapots

US-sanctioned "teapot" refiner Hengli led a profit spike among Chinese independents, per Nikkei. Sanctioned Chinese buyers keep taking discounted crude, which helps absorb the barrels the Gulf is dumping and puts a floor under how far prices can slide.

What to watch

Whether Hormuz traffic stays open and the discounted Gulf barrels keep flowing. Whether the Russian refinery outages hold diesel cracks up while crude eases. And how fast the rack passes any crude relief through to the street.