Incoterms or dollar? Re: Saudi Aramco US sales
Posted by Ivo Cerckel on November 4th, 2009
From The Times November 4, 2009
Saudi Aramco seeks solution to crude problem
Carl Mortished: World business briefing
http://business.timesonline.co.uk/tol/business/columnists/article6901552.ece
SNIPS
Saudi Aramco is worried about the price of oil, so worried that it has turned its back on a long-established benchmark — West Texas Intermediate (WTI) — used to price crude oil sold in the United States.
But it is not worried about the price so much as how it gets it. Aramco is switching from WTI, the benchmark blend of crude that is traded in the NYMEX futures exchange as US Light Sweet Crude, to ASCI, a price index of Gulf of Mexico crudes published by Argus.
Sellers always want more and Aramco is no exception. The Saudis are fed up with WTI because its price is highly volatile and the spec bears little relation to the heavy, sulphurous crude oil that they sell.
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Aramco found itself unable to price its crude properly. The Saudis don’t trade oil but historically sell it at fixed discounts to WTI, set in advance. With WTI bouncing around, the Saudis could not price their oil competitively against rival sour crudes. Customers were annoyed; by the time that cargoes arrived from Arabia, WTI’s oscillations could make Saudi crude dirt cheap or horribly dear. Aramco’s solution is to ditch the North American benchmark.
UNSNIP
Incoterms or international commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods. The first version was introduced in 1936 and the present dates from 2000, says Wikipedia.
And Saudi Aramco has not been able to agree with its US counterparties on contractual terms using the Incoterms in such a way as to solve the problems resulting from the oscillations of the WTI price (in dollar)?
The problem must be either the Incoterms or the dollar.
Ivo Cerckel
honestmoney@maktoob.com
http://twitter.com/ivocerckel