"The Saudis are preparing for Iran’s return," said Mohamed Sadegh Memarian, who recently retired as the head of petroleum market analysis at Iran’s oil ministry, as they sharply cut the prices they charge for crude oil in Europe (to the biggest discount since Feb 2009). The move that will likely undercut Iran happens as sectarian tensions escalate between the rival Middle Eastern nations. As WSJ reports, the Saudi move appears to pave the way for a competition over European oil markets later this year when Iran is expected to increase its exports after the expected end of western sanctions over its nuclear program.
Saudis have slashed prices with the biggest discount to Europe since Feb 2009...
Which has sent crude prices lower...
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Italy and Spain relied on Iran for 13% and 16% of their oil imports before the European Union banned such purchases under sanctions related to its nuclear program in 2012. Although the country was replaced in the market by Saudi Arabia and other countries such as Russia, Tehran is counting on rekindling those ties when it resumes exports.
Saudi Arabian Oil Co., or Saudi Aramco, the kingdom’s state-owned oil company, didn’t mention the conflict in its news release about the price cuts.
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Aramco prices are set every month at a discount or premium to various regional benchmark prices, which go up and down based on supply, demand and other factors considered by the market. On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery.
Iranian oil professionals interpreted the move as a way to compete with Iran returning to the oil markets. The European Union is set to lift an embargo on Tehran as soon as next month.
...Hamid Hosseini, the president of Iran’s oil exporters union, said he expected more competition from Saudi Arabia after the recent political tensions. But Mr. Hosseini, who is himself involved in talks with Iran oil buyers, said, “Iran will come back to Europe,” possibly by offering better credit terms and by bartering oil for goods.
Though it is still unable to sell in the EU, Iran has cut its nominal prices for North Western Europe by 27 percent in the past year.
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