Saudi Aramco refinery facility [Reuters=Yonhap News]

Saudi Arabia has significantly slashed the prices of its main crude oil grades for the Asian market, marking the first time in six years that it has shifted back to discounted sales.

According to a Bloomberg report on the 6th (local time), Saudi state-owned Aramco announced in its latest pricing list that the price for Arab Light crude for August delivery has been cut by $11 per barrel, setting it at $1.50 below the average of the regional benchmarks, Oman and Dubai crude.

Arab Light is the grade that accounts for the largest share of Saudi crude exports, and most refineries in South Korea, Japan, and China are designed to process this specific type of oil.

This marks the third time the company has offered this grade at a discount, following the production competition to counter U.S. shale oil in 2015 and the production-increase and price-cutting war with Russia during the COVID-19 pandemic in 2020. It also represents the largest monthly price cut since 2000.

This price reduction is interpreted as a result of intensified market competition, as supply pressure on the physical market has mounted following the rapid resumption of crude oil transport through the Strait of Hormuz by Gulf oil-producing nations after the signing of a tentative peace agreement between the U.S. and Iran.

Over the past few weeks, Brent crude futures have erased all gains made due to geopolitical tensions, and physical crude oil is currently trading at discount levels not seen since the COVID-19 pandemic.

Even with Aramco's substantial price cuts, some buyers in the Asian region have stated that Saudi prices remain higher than other readily available volumes from neighboring oil-producing countries, raising the possibility of further price reductions.

Saudi Arabia is currently gradually increasing its supply quotas in accordance with the agreement made by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+.

Ahmed Mehdi, an analyst at Renaissance Energy Advisors, stated, "This is not a signal of a price war, but rather a reflection of the supply surplus emerging from the normalization of the Strait of Hormuz," adding, "It is a measure to secure competitiveness in order to recapture demand from China."