Saudi Arabia’s defense of it share of the crude oil market is most intense in Asia, where its dominance has been challenged by other exporters, points out a report by Wood Mackenzie.
“Saudi Arabia had to cut its price in Asia to ensure its crude oil remained attractive to the region’s refiners,” writes Shushant Dupta, head of Asia downstream research. “Other suppliers looking to position themselves will have to pay close attention to the Saudi pricing strategy for Asia.”
Until September 2014, the official selling price (OSP) for Arab Light crude to Asia had exceeded the average of Oman and Dubai crude, a regional marker. Since then, the premium has become a discount, which this month reached $2.30/bbl.
“This means Arab Light’s price to Asia is at its lowest level in more than a decade,” Gupta says. Without the discount, Arab Light wouldn’t be competitive with comparable crudes from Russia and Nigeria.
If Saudi Arabia continued to export crude to Asia at the current rate, its share of that growing market would slip to 21% from 23%.
Asia’s share of Saudi crude oil exports has risen to 65% in 2014 from 60% in 2006.
During 2010-14, exports to Asia from Iraq, Russia, and the United Arab Emirates increased by more than those from Saudi, while competition strengthened from Latin America and West Africa.
Gupta notes rising production of oil from unconventional plays in the US and Canada has changed trade flows in the past 4 years.
“The US has increased its heavy crude imports from Canada, backing off crude volumes from Latin America,” he says. “Similarly, higher use of domestic tight oil resulted in the redirection of West African crude supplies. As such, these suppliers have turned to Asia, providing more options for Asian refiners."