Saudi Arabia fights for European oil market

[MikeWB]

They're undercutting Russians. This is nothing more than payback for them fighting in Syria.

How will Ruskies respond?



http://www.ft.com/cms/s/0/13ea5e60-83dd-11e5-8e80-1574112844fd.html

Saudi Arabia's state oil company has cut its official selling prices to Europe, as the world's largest exporter of crude attempts to retain its share of an oversupplied market.

The de facto leader of Opec, which produces more than one in every ten barrels of oil in the world, has been squeezed in Europe over the past year as rival producers have sent more oil to the region.

Shipments to Europe made up more than 13 per cent of Saudi oil exports last year, according to data from the Opec cartel, but that number has slipped to just 10 per cent in the past six months, ship-tracking data shows.

Rising shipments from Iraqi Kurdistan that are delivered into the Mediterranean via the Turkish port of Ceyhan have displaced some Saudi shipments this year, traders and analysts said, while more crude from west Africa is also flowing to Europe.

Saudi Arabia has responded by trying to find new customers, including targeting refineries that have traditionally taken the majority of their supplies from Russia and the North Sea.

On Thursday Saudi lowered its official prices for its Arab light crude grade in Europe by $1.30 a barrel for December, taking its discount to the weighted average of the North Sea Brent benchmark to $4.75 a barrel.

Going after Russia's customer base has raised heckles in Moscow, with Igor Sechin, the chief executive of Kremlin-backed state oil company Rosneft complaining last month about Saudi "dumping" after he revealed the kingdom was selling oil to refineries in Poland.

Swedish refiner Preem has also bought a Saudi cargo recently, its first in 20 years, according to Reuters. Analysts have been careful not to overstate the extent of the battle between Russia and Saudi Arabia given all producers are fighting for customers.

"It's a cargo here, it's a cargo there, but overall Saudi shipments to Europe are down," said Amrita Sen at Energy Aspects, a London-based consultancy.

"All customers like to diversify, and having a new supplier can help ahead of renegotiating term deals for next year."

The global oil market remains oversupplied by at least 1m barrels a day, a move exacerbated by both Saudi Arabia and Iraq raising production since Opec decided last year to focus on squeezing out higher cost producers rather than defending price.

"If Saudi Arabia and Iraq went back to producing what they were before last November's Opec meeting, the market would now be in a deficit," said Paul Horsnell, head of commodities research at Standard Chartered:

Saudi role as 'central banker' for oil is eroded
Saudi Arabian Oil Minister Ali al-Naimi talks to journalists as he arrives at his hotel ahead of an OPEC meeting in Vienna, Austria, June 1, 2015

Opec's reduced ability to cushion shocks to supply is causing concern


"The policy can't be characterised solely as a market share battle. Anything coming into the Mediterranean competes first with Russian and Iraqi crude."

Russia's oil output has also risen to post-Soviet era highs in 2015, despite crude prices more than halving to less than $50 a barrel since summer 2014. Russia is also sending more crude into Asia via its Eastern Siberia Pacific Ocean pipeline, increasing competition in those markets.

"ESPO has taken a fair share of Saudi's market share as well," one trader said.

Saudi Arabia increased its official selling prices into Asia for December because of strong refining margins seen in the region recently, traders said. It trimmed them slightly to the US.

Eugene Lindell, an analyst at JBC Energy, said the price reductions in Europe were not a big surprise and highlighted the current crude glut in the region, which has been pressuring local grades like North Sea Forties and Russia's Urals.

"It's a reflection of fundamentals which are extremely dire," Mr Lindell said.

"If the Saudi's did not lower prices, Polish refiners would simply start buying Urals again."