On Tuesday, Saudi Arabia reduced the official selling price of its flagship Arab Light for Asian buyers in January.
This is the first price reduction for the last seven months, Reuters noted in a report, but it is a modest one, at $0.50 per barrel. This is half what analysts expected as a price reduction, the report also said.
"Saudi set the price too high. That could prompt some buyers to nominate less cargoes and turn to buy cheaper crude from other suppliers from the spot market," a refinery executive from Asia told Reuters.
An analyst survey that Bloomberg conducted a week ago concluded that there was a significant chance for Saudi Arabia to reduce its official selling prices for Asian buyers in January because of intensified competition from other, non-Middle Eastern producers.
The influx of non-Middle Eastern oil comes as Brent crude, the global benchmark, is at near parity with the Dubai benchmark, according to PVM Oil Associates. The development, which is unusual, is the result of OPEC production cuts-notably Saudi Arabia's voluntary cut-that have pushed Middle Eastern oil prices higher, and closer to Brent.
As a result, Bloomberg reported last week, non-Middle Eastern oil has become more attractive for bargain hunters in Asia, doubling as evidence of the unintended effects of the production cuts, such as increased demand for less expensive oil.
But Saudi Arabia is not just cutting prices for Asian buyers. The world's top oil exporter also reduced the price of Arab Light for European buyers, by $2 per barrel, and for U.S. buyers, by a modest $0.30 per barrel.
Saudi-led OPEC+ last week agreed to deepen production cuts with more members joining the cutters. For now, plans are to only implement the cuts over the first quarter of next year but Saudi Energy Minister Abdulaziz bin Salman said this week they can "absolutely" be extended beyond the end of March 2024.
By Charles Kennedy for Oilprice.com