Traders involved in the negotiations said that Saudi Aramco and Asian refining companies have reached a deadlock in negotiations over long-term crude supply agreements, with both sides in dispute over unfinished volumes of oil that should have been lifted under existing contracts.
The dispute is a secondary consequence of the Middle East conflict: the conflict disrupted crude exports from the region, and Saudi customers were unable to lift their full contractual volumes under long-term agreements. Refiners were therefore forced to turn to the spot market to procure Persian Gulf crude more flexibly. Since early September, although ship attacks continued, crude oil flows through the Strait of Hormuz recovered somewhat, and Saudi Aramco used this opportunity to increase its spot crude offerings to Asia to meet this demand.
As the world's largest crude oil exporter, Saudi Aramco now wants to return to a long-term contract sales model and finalize next year's supply volumes. Multiple traders who spoke on condition of anonymity and were not authorized to speak publicly said the core of the dispute is whether the refineries' recent spot purchases should count toward the annual offtake obligations stipulated in this year's long-term contracts. The traders said that if spot purchases are not counted toward fulfillment, several Asian refineries would be unable to meet the long-term contract targets they signed with Saudi Aramco for 2026. Some refineries argue that spot purchases should count as fulfillment; however, Saudi Aramco does not agree and is demanding that customers lift more crude next year under long-term contracts to make up for the shortfall. It is understood that at least one refinery received a request from Saudi Aramco to commit to increasing crude offtake in 2027 to compensate for this year's lifting shortfall, and this refinery is resistant to that proposal. Saudi Aramco declined to comment.
With the Middle East war showing no sign of easing and the outlook for crude oil shipping full of uncertainty, many Asian buyers are reluctant to lock in larger long-term contract purchase volumes for next year. This disagreement has already spread to the spot market, with Asian buyers slowing their pace of purchasing Saudi crude as well as crude from other Middle Eastern producers. In previous years, negotiations for new annual term contracts were generally concluded by the end of October. Asian refineries typically purchase Middle Eastern spot crude loading in January during November, and the precondition for purchasing decisions is first clarifying the scale of next year's long-term contract volumes. Until the security situation in the Middle East stabilizes, the pattern of Asian refineries' crude procurement from the Middle East remains uncertain.
Saudi Aramco has also proposed plans to adjust the pricing benchmark and delivery terms of its supply contracts, with one alternative being for the Saudi producer to handle the direct transportation of crude to some Asian customers.
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