Saudi Arabia cuts Asian oil prices to counter rivals Russia, Iraq and Iran | Pakistan Today

Saudi Arabia cuts Asian oil prices to counter rivals Russia, Iraq and Iran

Under pressure from Russian, Iraqi and Iranian oil exports, Saudi Arabia discounted its crude last weekend to maintain its share of big Asian markets.

The price cut, which applies to September purchases, comes after two years of high-volume pumping by Saudi Arabia, the world’s largest oil producer. The kingdom had chosen to feed an oil glut and see prices drop rather than sacrifice sales to international rivals.

But in Asia—the main source of oil-demand growth recently—Saudi Arabia has continued to lose ground.

Last Sunday, it dropped its prices for Asian customers by between 70 cents and $1.30 a barrel (depending on the grade of oil), helping drive the global crude price below $42 a barrel. That was the deepest price cut since October last year. “The cuts were done to make sure Saudi Arabia remains competitive against sellers from the Middle East and Europe,” says a person familiar with the Saudi price-cut discussions.

Iraq’s Indian market share leapfrogged Saudi Arabia’s in this year’s second quarter. Iraq sold 11 million metric tons of oil to India in the quarter, a million more than Saudi Arabia, according to India’s oil ministry. That marks a reversal from last year, when Saudi Arabia’s India exports surpassed Iraq’s by 900,000 tons on a quarterly average. The shift reflects a boost in Iraqi production from new projects coming online. Iraq’s output in June was up 200,000 barrels a day from a year earlier, to 4.21 million barrels a day.

In China, Saudi Arabian oil is losing ground to Russian exports that are feeding China’s burgeoning independent refineries.

According to Chinese customs data, Russian crude exports to China increased by 9% to 4 million metric tons in June from a year earlier, inching closer to Saudi Arabia, whose sales fell by 14% to 4.6 million tons. Like Iraq, Russia has been ramping up output, with production of crude and condensates—liquid natural gas similar to light oil—in the second quarter rising by about 150,000 barrels a day from a year earlier to 11.03 million barrels a day, according to the Organization of the Petroleum Exporting Countries.

Saudi Arabia also is facing increased pressure from political rival Iran. Since Western sanctions were lifted in January, Iranian output has jumped by about 600,000 barrels a day to 3.64 million barrels a day in June. “Part of the weakness in Saudi Arabia is caused by crude headed to Asia from Iran,” said Jamie Webster, an adjunct research scholar at Columbia University’s Center on Global Energy Policy.

According to Vienna-based energy consultancy JBC, Iran’s combined exports to China, Japan, South Korea and India averaged 1.4 million barrels a day in the first half of 2016, up 29% year on year. That jumped to 1.7 million barrels a day in June. Iran’s shipments to India rose to 5 million metric tons in the three months to June, compared with a quarterly average of 3.2 million tons last year, according to India’s oil ministry.

The Saudi price cut wasn’t entirely motivated by competition—it was also aimed at stimulating demand in China’s weakening market, said the person familiar with the government’s price-cut discussions. OPEC expects Chinese oil consumption to rise by 280,000 barrels a day this year, down from 350,000 barrels a day in 2015.



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