 "Opec Flag | via Shutterstock")
Saudi Arabia is cutting prices and courting new customers in Europe in the face of growing competition from fellow Organisation of Petroleum Exporting Countries (OPEC) members.
The kingdom is responding to an increase in Iraqi shipments and Iran's preparation to resume exports after sanctions by cutting prices and making rare crude sales to refiners in Poland and Sweden, according to JBC Energy GmbH. This comes after competition also heated up in Asia, said consultant KBC Advanced Technologies.
"It's a buyers' market for crude, so if you want to place more barrels then you have to cut prices," Eugene Lindell, a Vienna-based analyst at JBC, said by phone. "It's not going to get any easier when Iranian barrels come. They will also set aggressive official selling prices."
Europe is becoming the latest battleground for oil producers seeking to maintain market share amid a global oversupply. Russia has protested Saudi sales to northern Europe, while also expanding its own share of Asian markets that were typically dominated by West Asian producers. Iran will intensify competition next year as it seeks to regain lost customers following a nuclear deal with world powers that will lift sanctions.
Price cuts
Saudi Arabia, the largest producer in the OPEC, cut official selling prices for all grades of crude to Northwest Europe and the Mediterranean Thursday. The decision follows the first sale in many years of Saudi crude to Polish and Swedish refiners that are typically buyers of Russian Urals.
The nation is preparing for market dynamics next year that are likely to be even more challenging, according to Lindell. Iraq, the second-biggest producer in OPEC, is likely to keep selling more crude to Europe next year, while the total amount of oil the region's refiners will process is likely to drop, he said.
Iraq's production reached a record 4.4 million barrels a day in June and was 4.3 million last month, according to data compiled by Bloomberg. It shipped about 540,000 barrels a day of its main export grade Basrah Light to Europe between January and July, International Energy Agency data show.
Once sanctions are lifted, Iran can boost oil exports by 500,000 barrels a day in a week and by 1 million a day within six months, Roknoddin Javadi, managing director of state-run National Iranian Oil Co, said last month.
Before the European Union banned member states from buying Iranian oil in 2012, the region's imports from the West Asian nation were just below 600,000 barrels a day, according to the Paris-based IEA.
Increased competition between suppliers is potentially a boon for European customers.
"From the buyers' perspective, it makes sense to diversify and keep your options open," Lindell said.
