Saudi Arabia plans to lower prices of July oil futures for northern Europe as competition with Iran intensifies.AP
The big players on the world oil market intend to increase production, despite the recent agreements on production decreases, with Saudi Arabia again aiming to reduce prices.
The kingdom plans to lower prices of July oil futures by $0.35 per barrel for northwest Europe and by $0.1 for Mediterranean countries, reports The Wall Street Journal, citing a statement made by the state Saudi Aramco Company.
The decision is linked to the escalation of competition caused by the renewal of Iranian supplies to Europe, writes the WSJ. Moreover, the Saudis are increasing the price of oil supplied to the U.S. by $0.1 per barrel.
According to Sergei Agibanov, director of the Economy Department at the Institute of Energy and Finance, Saudi Arabia is trying to receive the most it can from each regional market.
In the U.S. the demand for cheaper imported oil is growing, he explained: “That is why the Saudis are raising prices for the U.S.," he said.
In Europe, Saudi oil is facing competition not only from Iran but also from Russia, which is increasing its supplies to the region. This is why the kingdom is being forced to give the EU an additional discount.
Despite the fact that Saudi oil is considered "light" (low-sulfur), in reality it is more "middle," that is, closer in its characteristics to Russia's Urals crude, according to Mikhail Krutikhin, a partner at Rusenergy.
"This is why in north-western Europe competition with Russian oil may escalate," he said.
However, Alexander Pasechnik, chief analyst at the Foundation of National Energy Security, believes that the local dumping in Europe will first and foremost hit the European producers – the UK and Norway.
Iran's dumping as a response may even be greater, according to Pasechik: "It is very likely that Iran will lower the price on its crude even more. It still has a "safety margin," since the country has already given discounts of $1 per barrel," he said.
Iran has already sold a part of its heavy oil in Europe for $17 per barrel with the market price at the time being almost $39-40. If this price policy is employed again, competition may get out of hand.
It was Saudi Arabia that actively began lowering prices last year, aiming to force producers with high production costs out of the market. These companies were primarily American shale producers, but also producers in Russia, Canada and Brazil.
The strategy worked with respect to the U.S.: The number of oil rigs in the States fell by 50 percent in one year, according to Baker Hughes.
First published in Russian in Gazeta.ru
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