Why Saudi Arabia Is Losing Asia’s Oil Buyers

Saudi crude exports have plummeted to historic lows, and it’s not just disrupted trade routes or US-Iran tensions. The kingdom’s oil empire is crumbling under its own weight due to the world’s most expensive barrels becoming increasingly unpalatable in a market where prices have reached record levels.

China, still the largest customer of Saudi Aramco, has seen its nominations for June drop to about 600,000 b/d from April’s volume. This decline in demand is not solely due to weaker Chinese domestic demand; it’s also because of the rising cost of Saudi crude, which has become one of the most expensive barrels available.

In March, Saudi exports fell to 4.4 million b/d from February’s 7.3 million b/d. However, what’s more telling is that among the few Gulf nations with an alternative route to avoid the blocked Strait of Hormuz – namely, the East-West pipeline – only a fraction of this crude can be exported. The pipeline has a capacity of about 5 million b/d (with recently reported maximum capacity closer to 7 million b/d), but even that is not enough to meet demand from the five refineries on the Saudi Red Sea coast.

The writing is on the wall: at current prices, buyer appetite has become the most critical factor in determining Saudi exports. Chinese companies have been steadily reducing their Saudi crude nominations since March, with Sinopec and Rongsheng – two of China’s largest buyers – cutting their nominations from 10 million barrels to 2 million barrels and 7 million barrels to 1 million barrels, respectively.

The decline in demand is not unique to China; it’s a trend visible across all other Asian buyers. Japan took only about 202,000 b/d in March and April, down from its pre-crisis average of 1 million to 1.2 million b/d. South Korea is set to receive about 35% less Arab crude in May than in April (roughly 450,000 b/d versus 670,000 b/d). Even India, which needs medium-sour grades, is set to receive about 30% less Saudi oil in May.

The growing reluctance among buyers to take on more Saudi crude is reflected in the rising share of tankers loading at Yanbu and then floating in the Red Sea or heading toward Singapore only to wait offshore for a final destination. It’s not just a matter of logistics; it’s a sign that buyers are increasingly wary of taking on more expensive Saudi crude.

Saudi Arabia’s oil empire – once seen as a bulwark against economic instability – is vulnerable to market forces. The kingdom’s attempts to diversify its economy have been commendable, but they’ve failed to address the elephant in the room: its reliance on oil exports. As prices continue to rise and demand dwindles, Saudi Arabia will need to confront some hard truths about its energy strategy.

Can it continue to export its expensive barrels, or must it adapt to a changing market? The answer is not clear-cut, but one thing’s certain: the kingdom’s oil empire is crumbling under its own weight. This trend extends far beyond Saudi Arabia’s borders as global oil prices continue to soar. Other producers will need to reassess their energy strategies and determine whether they can adapt to a changing market or suffer the same fate as Saudi Arabia.

The IEA’s warning that oil could enter the “red zone” by July/August may prove prophetic. As demand continues to dwindle and prices keep rising, the very fabric of the global energy market is about to undergo a seismic shift. And Saudi Arabia will be at the forefront of that change – or perhaps, its undoing.