Aramco Slashes Prices of Oil for Asia as Saudis Lose Market Share

Saudi Arabia, the largest exporter of crude in the world, has cut prices for June exports of oil to Asia due to fighting to defend its market share in its largest regional market. The kingdom increased pricing to all remaining regions.

Arabian Oil Company, which is state owned and known more commonly as Saudi Aramco, reduced its pricing for its Arab Light crude by 40 cents on exports to Asia, said the oil producer in a statement it emailed.

Saudi Arabia ceded some market share to Iraq and Iran its rivals in OPEC through making steep cuts in production that were bigger than promised under the agreement by the group to curb overall production.

Analysts say that Iran gained a great deal of ground since sanctions against the Islamic Republic were eased last year against its oil industry, and the deal it made with OPEC allowing it to produce more volume. Even as output if cutback by Aramco, it has lowered its prices for oil to Asia to defend its sales and market share.

In contrast, Aramco increased it prices for oil of all grades for sales to the U.S. for the second straight month. It also increased pricing for its oil to be sent to both the Mediterranean and Europe, reversing the cuts that last month were made there.

The Organization of Petroleum Exporting Countries as well as 11 other crude suppliers reached an agreement to cut back production by over 1.8 million barrels daily during the first six months of 2017. They are trying to end a glut of crude that slashed the price to less than 50% of its 2014 high.

A consensus exists that these cuts will become extended into the second six months of 2017, said Khalid Al-Falih the Energy Minister of Saudi Arabia. OPEC is deciding at the end of this month whether to make an extension of the production limits.

Producers in the Middle East compete with shipments from Russia, North Africa and Latin America for Asian buyers. Asia is the largest market for the Middle East.

Producers in the region of the Persian Gulf sell mostly using long term contracts with their refiners. Most of the state oil businesses in the Gulf price crude at a discount or premium to the specific benchmark.

For Asia, this benchmark is the average of Dubai and Oman oil grades.

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