RIYADH: Saudi Government cut crude oil prices by 90 cents to 2.30 dollars a barrel to Asia which is an indication that the desert kingdom is continuing to fight for market share.
“This is further evidence that they are hellbent on protecting their market share in China,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion, said by phone Thursday. “They are trying to stay competitive in what is the biggest area of growth.”
Middle Eastern producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia. China was the world’s second-biggest crude consumer after the U.S. in 2014, according to International Energy Agency data.
Oil prices have collapsed since the Organization of Petroleum Exporting Countries decided to maintain its output target on Nov. 27, fanning speculation that Saudi Arabia and other members were determined to let North American shale drillers and other producers share the burden of reducing an oversupply.
Brent crude, the benchmark for more than half of the world’s oil, rose as much as $1.42 a barrel, or 2.5 percent, to $57.99 a barrel on the London-based ICE Futures Europe exchange and traded at $57.81 at 10:11 a.m. Dubai time. West Texas Intermediate, the U.S. benchmark, rose $1.26 to $51.74 a barrel on the New York Mercantile Exchange.
Saudi Aramco, as the producer is known, cut differentials on each of the four other grades it sells to Asia, its largest market, and raised them to the United Stats, Northwest Europe and the Mediterranean region, according to Thursday’s statement. The discount on Extra Light crude to Asia also dropped to a low of at least 14 years and Arab Medium was cut to within 10 cents of its record discount for buyers in Asia.
Persian Gulf oil producers sell most of their crude under long-term contracts to refiners. Most of the region’s state oil companies price their oil at a premium or discount, also known as the differential, to a benchmark. For Asia the benchmark is the average of Oman and Dubai oil grades.
Saudi Arabia’s share among the top three suppliers to China fell to 37 percent in December, from 44 percent in October, as the country lost ground to Angola and Russia, according to Julian Lee, an oil strategist for Bloomberg First Word. In the U.S., Saudi Aramco is in contention with Mexico to be the second-largest supplier behind Canada, Lee said.
