Riyadh has cut oil prices to Asia by $1.60 per barrel, the most in 10 months, signaling mounting competition with fellow OPEC member Iran. Saudi Arabia is ramping up exports to regain market share.
State-run Saudi Aramco plans to sell Arab Light crude at $1.10 per barrel below the Asian regional benchmark, starting September. Experts had expected a $1 per barrel drop.
Prices for Light and Extra Light crude for US clients was cut by 20 cents and 40 cents respectively with the Medium and Heavy grades left unchanged. The company raised prices on all grades except Extra Light to northwest Europe and the Mediterranean.
Tehran has boosted crude output 25 percent in 2016 aiming to reach daily production of four million barrels by the end of the year. According to shipping data, the Asian market makes up the largest share of Iranian sales.
Since January when international sanctions restricting its exports were lifted, Iran has managed to become OPEC’s third-biggest producer. Saudi Arabia has responded by increasing exports of its oil and refined products.
“This is a throw down challenge that I’m sure the Iranians will match,” said John Kilduff, partner at Again Capital as quoted by Bloomberg, adding that the market battle between the two rivals was back on in a big way.
Demand for crude in Asia is currently slowing with refineries cutting production due to a slump in margins and constantly rising supply from state-owned corporations.
Since the start of the year Brent crude rose 17 percent as a result of supply disruptions in Nigeria and Canada. However crude prices have slipped in the last three months and are still 12 percent lower compared to a year ago.
Iran predicts balance will be restored to the oil market. “The oil market is oversupplied now but there are expectations that there will be a balance between demand and supply in the market,” said Oil Minister Bijan Namdar Zanganeh in an interview with Iranian state television on Monday.