Saudi raises price of main oil grade for Asian buyers in hint of strategy turnaround

Analysts say it's a sign that prices could be going down too fast for Saudi Arabia as it seeks to preserve market share.

Saudi Arabia raised the cost of its oil sales to Asia in February, prompting speculation the world’s biggest exporter is retreating from using record price discounts to defend market share.

Saudi Arabian Oil Company will sell its Arab Light grade for $1.40 a barrel less than a regional average next month, the company said in a statement. That’s a narrowing from January, when the discount was $2, the biggest in at least 14 years. It decreased 11 prices globally and increased six. Brent oil fell 5.9 per cent yesterday.

Oil prices have collapsed 32 per cent since Opec decided to maintain its output target on November 27, amid signs Saudi Arabia and other members are determined to let North American shale drillers and other producers share the burden of reducing an oversupply. When Aramco lowered prices for November it prompted speculation the nation was seeking to preserve market share.

“They’re putting the brakes on a little bit,” Leo Drollas, a London-based independent consultant and former chief economist at the Centre for Global Energy Studies, said by phone. “It’s a little message that maybe prices are going down too far too quickly, and this is a little signal that they’re looking at things.”

Brent crude added 22 cents to $53.33 a barrel on the ICE Futures Europe exchange at 12.38pm Singapore time. Prices yesterday declined $3.31, or 5.9 per cent, to $53.11, the lowest close since May 1, 2009.

The state-owned producer, known as Saudi Aramco, raised prices for all its crudes in Asia and cut all of them for Europe and most in the US.

Saudi Aramco surprised the oil market in October when it trimmed November crude prices to five-year lows in Asia, signalling the biggest producer in Opec would defend its market share rather than seeking to prop up prices. It continued last month, cutting the discount for Arab Light crude for sale to Asia in January to the deepest in at least 14 years.

Swelling supplies from producers outside Opec drove Brent crude into a bear market on October 8 amid waning demand from China, the world’s second-largest importer. Middle Eastern producers are increasingly competing with cargoes from Latin America, North Africa and Russia for buyers in Asia.

“There is a fight for market share going on,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We are not seeing any kind of production decreased.”

Opec decided at its last meeting to keep its production target unchanged at 30 million barrels a day. Members pumped more than that for a seventh straight month in December even as the group itself forecasts that markets will need less of its crude.

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