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OPEC’s biggest producer prices oil at record lows to the Asian market, raises rates in the U.S. and Europe

Saudi Aramco announced its prices for March, dropping prices to the Asian markets to their lowest in over a decade in order to protect market share in the world’s fastest growing energy market. The new prices for March also showed increases to other parts of the world, including the U.S. and Europe.

The company sent out an email  on Thursday announcing official selling price for Arab Light crude in Asia would be lowered an additional $0.90 per barrel to a total of $2.30 per barrel less than Middle East benchmarks, reports Bloomberg. The company also announced that it would be cutting differentials on each of the four other grades it sells to Asia. The cuts have put Arab Light at its lowest price since Bloomberg began gathering data 14 years ago, and put Arab Medium within $0.10 of its record discount for Asian buyers.

“This is further evidence that they are hellbent on protecting their market share in China,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said. “They are trying to stay competitive in what is the biggest area of growth.”

Middle Eastern producers continue to cut prices aggressively in Asian markets in order to protect market share in what is expected to become the dominant energy importing part of the world, according to BP’s Energy Outlook 2035.

Saudi Arabia’s share among the top three suppliers to China slipped to 37% in December, down from 44% in October, as the country lost ground to Angola and Russia.

“The U.S. used to be the market the Saudis were most concerned about preserving market share in, but that’s no longer the case,” said O’Grady. “China is where they see growth coming from in the decades ahead.”

Higher prices for the rest

The cuts in the Asian market are offset by raising prices in other markets. The company raised prices on all oil grades to its customers in the U.S. by $0.15, according to the Financial Times. The company said prices for customers in Northwest Europe would go up even more, between $0.70 and $1.15 per barrel. The $0.15 increase will push Arab Light to $0.45 more than the U.S. Gulf Coast benchmark.

The increased prices reversed a three-month long trend of price cuts from Saudi Aramco in the American market. At the time of this article’s writing, WTI is up 3.39% to $52.19. Brent crude is also up 2.92% at $58.22.

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Analyst Commentary

Baird Research 02.06.2015

Saudi Arabia cuts discount to Asia to a record low further defending its market share. Bloomberg reports State-owned Saudi Arabian Oil Co. reduced its pricing to Asian customers to $2.30/ bbl less than Middle East benchmarks representing the largest discount on record. With crude oil seemingly trying to find a bottom, price concessions like this indicate prior highs are likely only a recent memory rather than a prospective truth.  


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.