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Saudi Arabia plans to change oil pricing for European customers

Saudi Arabia plans to change oil pricing for European customers

The move is expected to take effect on July 1

Saudi Arabia, the world’s top oil exporter, plans to change the way it prices oil for Europe from July, industry sources said, in an effort to increase the appeal of Saudi crude by making it easier for customers to hedge.

State oil giant Saudi Aramco will start pricing its European exports against the ICE settlement for the Brent benchmark after years of pricing its oil against the Brent Weighted Average (BWAVE), the sources said.

Both price references are part of the Brent benchmark used to price much of the world’s crude. The move, which takes effect on July 1, will allow buyers of Saudi crude in Europe to hedge better, the sources said.

“The Saudis are switching to the settlement as BWAVE is difficult to hedge,” said one industry source briefed on the matter who declined to be identified.

Two other industry sources confirmed the planned changed from July 1.

The European market, long dominated by Russian oil supplies, has been neglected by major OPEC producers due to poor growth as they focused on expanding Asian markets.

But as Russia moved aggressively into Asian markets and with a growing oil glut intensifying the fight for customers, OPEC members such as Saudi Arabia and Iraq ramped up sales to Europe, taking on former Russian customers such as Poland and Sweden.

In late 2015, Kuwait began pricing its European exports against another part of the Brent benchmark, dated Brent, after years of following Saudi Arabia in pricing oil against BWAVE.

The move was aimed at making its crude more competitive as oil producers fight for market share.

BWAVE is also used by Iran, while Iraq uses dated Brent.

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