Saudi Arabia to switch crude oil pricing for Europe

LONDON (Bloomberg) -- Saudi Arabia is to tweak the benchmark it uses to sell its crude in Europe, in a concession to refiners in the region that have long complained about their ability to hedge using the current measure.

Saudi Arabian Oil Co., as the country’s state-owned company is formally known, will sell crude into Europe, Africa and Latin America based on ICE Brent Settlement, a one-day close for the benchmark, rather than the current system of using the daily weighted average of Brent trades. Both are published by ICE Futures Europe Ltd.

In a letter to European customers, Aramco said the "change is expected to provide substantive benefits, including allowing our customers to closely hedge crude purchases." The move is effective July 1, and follows consultations with customers, according to a letter obtained by Bloomberg News.

European refiners have long complained that the use of a weighted average makes hedging their exposure to the benchmark difficult, forcing them to sell and buy multiple times during the day to mirror changes in volumes.

Saudi Aramco follows Kuwait in abandoning the weighted average price, known in the industry as Bwave. Iran continues to price its crude into Europe using Bwave but in the past it has mirrored moves made by Saudi Arabia.

“Saudi Arabia is confident that this enhancement will continue to provide a transparent, reliable and liquid market serving both parties,” the company wrote.

Reuters first reported the switch. Saudi Aramco didn’t immediately reply to an email seeking comment.