• 5 mins Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 50 mins EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 2 hours IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 3 hours Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 4 hours Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 5 hours Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 6 hours Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 13 hours WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 18 hours Norway Grants Record 75 New Offshore Exploration Leases
  • 22 hours China’s Growing Appetite For Renewables
  • 1 day Chevron To Resume Drilling In Kurdistan
  • 1 day India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 1 day India’s Reliance Boosts Export Refinery Capacity By 30%
  • 1 day Nigeria Among Worst Performers In Electricity Supply
  • 2 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 2 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 2 days Saudis To Award Nuclear Power Contracts In December
  • 2 days Shell Approves Its First North Sea Oil Project In Six Years
  • 2 days China Unlikely To Maintain Record Oil Product Exports
  • 2 days Australia Solar Power Additions Hit Record In 2017
  • 2 days Morocco Prepares $4.6B Gas Project Tender
  • 2 days Iranian Oil Tanker Sinks After Second Explosion
  • 5 days Russia To Discuss Possible Exit From OPEC Deal
  • 5 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 5 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 5 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 5 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
  • 5 days Falling Chinese Oil Imports Weigh On Prices
  • 5 days Shell Considers Buying Dutch Green Energy Supplier
  • 6 days Wind And Solar Prices Continue To Fall
  • 6 days Residents Flee After Nigeria Gas Company Pipeline Explodes
  • 6 days Venezuela To Pre-Mine Petro For Release In 6-Weeks
  • 6 days Trump Says U.S. “Could Conceivably” Rejoin Paris Climate Accord
  • 6 days Saudis Shortlist New York, London, Hong Kong For Aramco IPO
  • 6 days Rigid EU Rules Makes ICE Move 245 Oil Futures Contracts To U.S.
  • 6 days Norway Reports Record Gas Sales To Europe In 2017
  • 7 days Trump’s Plan Makes 65 Billion BOE Available For Drilling
  • 7 days PetroChina’s Biggest Refinery Doubles Russian Pipeline Oil Intake
  • 7 days NYC Sues Five Oil Majors For Contributing To Climate Change
  • 7 days Saudi Aramco Looks To Secure $6B In Cheap Loans Before IPO
Alt Text

Venezuela Is Recruiting Miners For Its Cryptocurrency

Venezuela’s plans to introduce an…

Alt Text

The Key To Profiting In 2018’s Energy Market

The rise of renewable sources…

Alt Text

The Most Feared Businessman In Russia

No politician or businessman is…

Gaurav Agnihotri

Gaurav Agnihotri

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused…

More Info

Decoding Saudi Arabia’s Strategy In Its Oil Price War

Decoding Saudi Arabia’s Strategy In Its Oil Price War

Saudi Arabia has been in the line of fire for not reducing the production levels of OPEC since November 2014. By defying the international pressure to reduce production, OPEC has consistently exceeded its official production target of 30 million barrels per day since May 2014.

Saudi Arabia, which is the biggest producer in OPEC, produced 10.3 million barrels per day in September this year. Recently, in order to protect its market share from other suppliers like Russia, the Saudis started offering discounts on their heavy and medium grade crude to Asian customers like India. And now, the Saudis have further cut the pricing of its oil not only to the Asian market but also to the U.S. markets.

Produce more and discount it

Falling demand and rising competition from other suppliers has compelled Saudi Aramco to reduce the selling price of its medium grade crude to Asia for November delivery by $3.20 a barrel below the benchmark. According to Bloomberg, this is the biggest cut by Aramco since February 2012, when prices were cut by $2 a barrel.

Aramco further reduced the price of its Arab Light crude for the Asian market by $1.60 a barrel below the benchmark. On the other hand, Aramco reduced the price of all the grades (light, medium and heavy grades) by 30 cents a barrel for the U.S. markets. The Saudis are thus maintaining a cautious approach as they try hard to defend their market share amid weak demand and low oil prices by offering discounts.

And they are proving to be successful. Although oil prices have fallen dramatically since 2014, Saudi Arabia has been more or less able to maintain its market share in its biggest market - Asia. Related: A Key Indicator Low Oil Prices Are Lifting Demand

Saudi Arabia’s crude oil market share in Asia

(Click to enlarge)

Image Source: EIA

Saudi Arabia exported around 4.4 million barrels per day of crude oil to its seven biggest Asian customers, and it has largely succeeded this year in holding onto the same market share that it held in 2014 (see chart).

Investing In India’s Emerging Economy

China has long been the largest and fastest growing market, but as China’s economy slows, India is beginning to emerge as the most important source of future demand. "India is a big customer of ours. We are also committed to ensure supplies that are essential for India. But, (the investment talks with India) hasn’t gelled yet. Hopefully these talks will come to a good conclusion,” said Saudi Arabia’s influential oil minister Ali Al Naimi in an interview with the Economic Times. Saudi Aramco has been on the lookout for acquisitions in India’s oil and gas sector for some time now. Related: Most Of BP’s $20.8 Billion Deepwater Horizon Fine Is Tax Deductible

According to a report from ET, Saudi Aramco was previously negotiating with India’s state owned Oil and Natural Gas Corporation Limited (ONGC) for a considerable stake in an upcoming petrochemical plant worth close to $3 billion. Low oil prices have been hugely beneficial to India, saving millions of dollars on oil imports, which account for 80 percent of the country’s total crude oil requirement.

Moreover, low oil prices have benefitted the state-owned downstream companies and refiners like HPCL and BPCL whose subsidy burdens have been drastically reduced. Even private Indian refiners like Reliance Industries Limited (to whom Aramco already supplies crude oil) and Essar Oil Limited have been doing exceedingly well and posting impressive refining margins.

(Click to enlarge)

Image Source: Forbes Related: Oil Fundamentals Improve But Inventories Will Keep Prices Low

At around 4.1 million barrels per day, India’s crude oil consumption is one of the highest in the world. More importantly, it is expanding quickly, with incremental demand growth for this year expected to hit 300,000 barrels per day, more than China’s expected demand growth.

With all this in place, it is likely that Saudi Arabia will invest in India’s downstream sector in the near future as India would provide a huge market for the oil kingdom. Moreover, this would give Saudi Arabia an edge over Iran, which could potentially ramp up its oil exports to India by next year after sanctions are removed. The investment by Saudi Arabia could be either in the Indian public sector undertaking (PSU) or any existing joint venture (between government and private industry) petrochemical establishment in the country.

Will Saudis reduce their production anytime soon?

The answer to this is almost certainly no, as Saudi Arabia is in no mood to bow down to the international pressure and reduce its market share. Although OPEC members like Venezuela have repeatedly demanded a production cut, Saudi Arabia has refused to back down. Even Russia, which is itself pumping close to 10.74 million barrels a day, has refused to reduce its high production levels. This makes a potential Saudi (or OPEC) production cut even more unlikely in the coming few months.

By Gaurav Agnihotri for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News