Saudi Arabia has cut its asking prices for next month's crude oil shipments to Asia in a bid to keep the loyalty of its most important customers. It is a case of short-term pain for what the kingdom hopes will be long-term gain. The price cuts for Arab Light, the most popular crude pumped by the national oil company Saudi Aramco, were in line with traders' expectations. But they were deeper than expected for heavier crude grades.
"Saudi Arabia is under some pressure that term buyers are not willing to take full volumes," a trader with a north-east Asian refiner told Reuters. "The Saudis could keep [official selling prices] steady at low levels in the near future." Aramco's latest asking prices for east-bound crude are the lowest in 20 months. They reflect a regional market glutted with supplies from Gulf producers and Russia.
The Gulf states, including Iran, have traditionally been the main oil suppliers to Japan and South Korea. They have also increasingly fuelled China's fast-growing economy. Russia has also been courting the Far East. As oil demand has stagnated in Europe, Russia has been shipping more crude through a pipeline from recently developed oilfields in eastern Siberia to the Pacific coast. A branch to deliver Russian oil to China is due for completion in December. That has left Saudi Arabia and other Gulf producers fighting for market share, not only with Russia but also among themselves.
"I guess the Saudis are realistic. I think they are worried about the relative attractiveness of their crude against the value of Oman cargoes, which has cratered," one trader told Reuters. On Tuesday, Abu Dhabi National Oil Company cut official selling prices for its July term crude shipments, which are en route to Asia. Kuwait is also worried. "We hope that there will be closer co-operation between Russia and OPEC. This will be mutually beneficial," Sheikh Ahmed Abdullah Al Sabah, the Kuwaiti oil minister, said yesterday in Moscow.
All this points to declining foreign revenues for Saudi Arabia and other Gulf producers with economies that are strongly dependent on oil. tcarlisle@thenational.ae
