OPEC price war in Asia in­ten­si­fies as oil falls be­low $50

The Pak Banker - - 6BUSINESS -

Even as Saudi Ara­bia and its Gulf OPEC al­lies ap­pear united in their re­fusal to cut out­put to boost global oil prices, they are be­com­ing locked in an in­creas­ingly fierce bat­tle to se­cure mar­ket share in Asia.

Oil prices have slumped be­low $50 a bar­rel, the weak­est since 2009, trig­ger­ing a price war be­tween pro­duc­ers to se­cure cus­tomers in Asia. And the price out­look re­mains grim with Gold­man Sachs slash­ing its three-month bench­mark crude forecasts to just above $40. The United Arab Emi­rates (UAE) last week joined Kuwait and Iraq in pric­ing crude they sell to Asia be­low that of OPEC's top pro­ducer Saudi Ara­bia.

The dis­counts show how Gulf mem­bers, who ac­count for more than half of OPEC out­put, are pre­pared to take on each other to re­tain mar­ket share and, in so do­ing, put more pres­sure on global oil prices.

"It's a fight for the mar­ket," said Tushar Bansal of con­sul­tancy FGE, who says Gulf pro­duc­ers such as the UAE are pre­pared to stom­ach lower prices to hold their mar­ket share.

The UAE's Abu Dhabi Na­tional Oil Company (AD­NOC) set the of­fi­cial sell­ing price (OSP) for flag­ship grade Mur­ban in De­cem­ber at a dis­count to sim­i­lar qual­ity Saudi's Arab Ex­tra Light for the ninth month in a row, data from Reuters and trade sources showed last week.

This was de­spite Saudi Ara­bia rais­ing its prices to cus­tomers in Asia after sharp re­duc­tions in pre­vi­ous months.

AD­NOC had felt it had to re­duce prices to en­sure its crude re­mained at­trac­tive to Asian re­fin­ers, a source fa­mil­iar with their strat­egy said. Gold­man Sachs has low­ered its av­er­age 2015 price fore­cast for bench­mark Brent and WTI fu­tures to $50.40 and $47.15 per bar­rel, re­spec­tively.

The U.S. bank cut its three­month price fore­cast for Brent to $42 from $80 and U.S. crude to $41, down from $70, adding it would need to stay near $40 for most of the first half of 2015 be­fore it would hold up shale oil in­vest­ments.

"To keep all cap­i­tal side­lined and cur­tail in­vest­ment in shale un­til the mar­ket has re­bal­anced, we be­lieve prices need to stay lower for longer," its an­a­lysts said in a re­port.

As well as tar­get­ing North Amer­i­can shale, oil min­is­ters from OPEC, in­clud­ing the UAE, have called for ex­porters, such as Rus­sia, to cut out­put to lift prices. Rus­sia, in turn, wants OPEC and Saudi Ara­bia in par­tic­u­lar to cut pro­duc­tion first.

Over the past decade, UAE's Mur­ban OSP has been on av­er­age 15 cents a bar­rel higher than Saudi's Ex­tra Light OSP, but the re­la­tion­ship be­tween the grades switched since April last year, the data showed. In Septem­ber, Mur­ban was priced at the widest dis­count to Ex­tra Light in over a decade at $2.28.

Another Abu Dhabi grade, Up­per Zakum, also flipped into a dis­count against Saudi's Arab Medium in De­cem­ber, even though Up­per Zakum has been priced at an av­er­age pre­mium of $1.11 a bar­rel above the Saudi grade in the last decade.

AD­NOC sets its prices two months be­hind those of Saudi, Kuwait and Iraq, which gives the UAE's main pro­ducer more time to re­act to mar­ket changes.

The UAE, OPEC's fifth largest pro­ducer, has been ex­pand­ing its out­put and re­mains on track to boost pro­duc­tion ca­pac­ity to 3.5 mil­lion bar­rels per day by 2017, up from about 2.8 mil­lion bpd, its oil min­is­ter said in re­marks pub­lished last week.

The UAE's price cuts have spurred de­mand for Abu Dhabi grades in the spot mar­ket, with Tai­wanese re­finer CPC Corp buy­ing vol­umes of Mur­ban crude at the start of the year.

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