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Opec producers cut oil prices for Asia

West Asian producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia

<a href="http://www.shutterstock.com/pic-222188311/stock-photo-flag-of-opec-close-up.html" target="_blank">Opec Flag</a> | via Shutterstock

Bloomberg Dubai/New York
Iraq, Kuwait and Iran joined Saudi Arabia in cutting their March crude prices for Asia, signalling the battle for a share of Opec's largest market is intensifying.

Iraq's Basrah Light crude will sell at $4.10 a barrel below West Asia benchmarks, the deepest discount since at least August 2003, the Oil Marketing Co said Tuesday. National Iranian Oil Co said its official selling price for March Light crude sales will be a discount of $2.10 a barrel, the widest since at least March 2000, according to a company official who asked not to be identified because of corporate policy. Kuwait Petroleum Corp said Wednesday its discount will be $4.10, the biggest since August 2008.
 
The cuts come after Saudi Arabia, the largest crude exporter, reduced pricing to Asia last week to the lowest in at least 14 years. The Organization of Petroleum Exporting Countries left its members' output targets unchanged at a November meeting, choosing to compete for market share against US shale producers rather than support prices. Iraq is the second-biggest producer in Opec, Kuwait is third and Iran fourth.

"This is an effort by some producers to protect market share," Sarah Emerson, managing principal of ESAI Energy Inc, a consulting company in Wakefield, Massachusetts, said by phone Tuesday. "It's really straightforward; cutting prices is how you keep your foot in the door."

Increasing competition
West Asian producers are increasingly competing with cargoes from Latin America, Africa and Russia for buyers in Asia. Oil prices have dropped about 45 per cent in the past six months as production from the US and Opec surged.

The International Energy Agency said on Tuesday that the US will contribute most to global growth in oil supplies through 2020 as Opec's attempts to defend its market share will hurt other suppliers including Russia more.

"If they go out and sell at a higher price, they won't sell much," John Sfakianakis, West Asia director at Ashmore Group Plc, a London-based investment manager, said in an interview in Dubai on Tuesday. "For the Saudis, it's market share at any cost. Saudi is the leader in this and the others have to follow the leader."

Iran's output rose to 2.78 million barrels a day in January from 2.77 million a month earlier as Iraq boosted supply to 3.9 million from 3.7 million, according to a Bloomberg survey of oil companies, producers and analysts. Production in Saudi Arabia climbed 220,000 barrels a day to 9.72 million last month.

Saudi views
Saudi Arabia won't balance global crude markets by itself even as prices fall "too low for everybody," Khalid Al-Falih, the chief executive officer of Saudi Arabian Oil Co, said at a conference in Riyadh on January 27. The kingdom's Oil Minister Ali Al-Naimi has said producers outside of the group should trim their output first.

Brent crude, the benchmark for more than half of the world's oil, declined 72 cents a barrel, or 1.3 per cent, to $55.71 on the London-based ICE Futures Europe exchange Wednesday. The European crude touched $45.19 on January 13, the lowest since March 2009. West Texas Intermediate, the US benchmark, fell 32 cents, or 0.6 per cent, to $49.70 a barrel on the New York Mercantile Exchange after falling 5.4 per cent on Tuesday.

"This is a global market that's oversupplied," Emerson said. "Late March and early April are in normal times a period of weak demand, so you have to be rather aggressive now if you want to sell your oil."

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First Published: Feb 12 2015 | 12:05 AM IST

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