Saudi pricing shows oil volatility in action amid oversupply

Saudi Aramco, the kingdom state owned oil company, cut its official selling price (OSP) for its main Arab Light grade to Asia to a discount of $1.60 a barrel to the regional benchmark Oman/Dubai price for November from a premium of 10 cents for October cargoes.While the reduction was at the canada goose jacket outlet store lower end of expectations of traders surveyed by Reuters ahead of the announcement, canada goose uk it still indicates that the Saudis are willing to accept reduced prices in order to keep their canada goose outlet ottawa crude competitive.In turn, this shows that there canada goose outlet new york city is still likely some distance to go before the end of the current cycle of weak crude prices, especially if one accepts the view that the Saudi pricing strategy reflects their desire to maintain market share over pricing power.A wider contango in the Dubai market structure in recent weeks, with oil for three months out commanding a higher premium than spot deliveries, was always likely to lead to a drop in the Saudi OSPs.The OSPs probably didn decline by as much as canada goose uk site indicated by the contango because they hadn risen by as much in canada goose outlet florida the third quarter, when the contango virtually disappeared amid strong demand for prompt supplies.The Saudi OSPs set the trend for prices from Middle East rivals such canada goose outlet mississauga as Iran, canada goose outlet toronto Iraq and Kuwait, and are thus the bellwether for as much as canada goose outlet orlando 12 million barrels per day (bpd) of crude destined for Asian refiners.The Saudi OSP also reflects the changing dynamics of the Middle East oil market, where prices have been moved dramatically canada goose sale uk by the intermittent, but massive, participation of the trading arms of the Chinese state controlled oil majors.In the past 12 months, heavy buying on three occasions by Chinaoil, the trading arm of PetroChina, has pushed Oman/Dubai prompt prices substantially higher, thus narrowing the spread DUB EFS 1M between Dubai and global crude benchmark Brent.This has no canada goose outlet store quebec doubt complicated price setting for the Saudis, canada goose outlet parka because their usual method of calculating canada goose outlet houston the OSPs by looking at the Dubai time spreads between front month and third month doesn take into account the relationship between Dubai and Brent.If Dubai crude rises relative to Brent, then oil from Atlantic canada goose outlet toronto location basin suppliers, canada goose outlet black friday especially Angola and Nigeria, becomes more competitive for Asian refiners. It also helps to boost the competitiveness of other non Middle East crudes, such as Russia ESPO, which reaches Asia through a pipeline to the eastern port of Kozmino.CHINA, INDIA DIVERSIFY SUPPLY This can be seen in the canada goose outlet uk import data for Asia top two oil buyers, China and India.While China has canada goose shop uk boosted its imports from Saudi Arabia by 8.3 percent in the first eight months of 2015 over the same period last year, it has bought 28.3 percent more from Russia, 14.6 percent more from Venezuela and a massive 99.4 percent more from Brazil.India has lifted its purchases from Saudi Arabia by learn this here now 11.2 percent in the first eight canada goose outlet nyc months, but has increased volumes from Angola by 43.6 percent, Nigeria by 29.9 percent and Mexico by 44.6 percent.In both China and India, Saudi Arabia remains the top supplier, but other countries are closing the gap and it little surprise that some of them are producers whose oil is priced against Brent, and not the Middle East benchmark Oman/Dubai.The main challenge for the Saudis is trying to set prices that remain competitive both canada goose outlet store toronto to other Middle Eastern suppliers, and also with other crudes that are generally priced against Brent.In practical terms, this is canada goose outlet mall likely to mean considerably more volatility in the OSPs, a trend that can already be seen, with the Arab Light premium to Oman/Dubai moving from a discount of 10 cents a barrel in December last year to a discount of $2.30 by March, to a premium of 40 cents by September and then back to a discount of $1.60 for November cargoes.

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