Saudi Arabia cuts Oil Prices while OPEC’s Price War continues

Saudi Arabia on Sunday made deep reductions to the prices it charges for its oil, hard on the heels of cuts last month by rival producers in the Gulf.

With U.S. production still increasing despite lower oil prices, members of the Organization of the Petroleum Exporting Countries are battling to keep their share of the last growing markets in Asia.

In a list of official prices sent to customers, state-oil company Saudi Aramco cut the price of its light-crude deliveries to Asia by $1.7 a barrel. As a result, it switched to a discount of $1.6 a barrel against the rival Dubai benchmark from a premium of 10 cents a barrel previously. The company also cut its prices for heavy oil by $2 a barrel to the Far East and by 30 cents a barrel to the U.S.

The move come as Iran, Iraq and other countries in the Middie East made deeper cuts in their official prices than Saudi Arabia last month.

Saudi Arabia has vowed to keep pumping at high levels as it hopes lower oil prices will stimulate Asian demand and hit rival production in the U.S. that is expensive to produce. But while Chinese economic growth is slowing, U.S. production rose by about 68,000 barrels a day in July, according to the U.S. Energy Information Administration.

The U.S. Energy Information Administration (EIA), which reports official weekly storage data on Wednesday, said in its last report that inventories rose about 4 million barrels in the week to Sept. 25.

Russia ready to meet OPEC to talk oil prices
Russia is ready to meet with members of the Organization of Petroleum-Exporting Countries (OPEC) — as well as non-member oil producers — to discuss the situation facing global oil markets, according to the country’s oil minister.

Major oil producers such as Russia and OPEC, which includes Middle Eastern producers as well as Venezuela, Mexico and Nigeria among others, have been hit hard after a sharp drop in oil prices since June 2014 (when a barrel of Brent fetched $114) on the back of a glut in supply and lack of demand.

Rather than cutting production in a bid to support prices, however, OPEC decided last November to maintain its production ceiling of 30 million barrels a day. The move has been seen largely as a strategy to defend its market share amid a rise in U.S. shale oil production.However, since then, Russia refused to cut its own production in a bid to support prices — somewhat understandably given that OPEC itself has maintained record production levels.

Oil prices trends for the 5th of October

Staying on the topic of OPEC, and the cartel kingpin of Saudi Arabia has confirmed that it will discount its Medium grade crude to Asia next month by $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales. This reduction in its official selling price (OSP) is the widest discount since February 2012.

Points of the day:

Crude oil prices settled up more than 2 percent on Monday, bolstered by a rally in U.S. gasoline and Russia’s willingness to meet other major oil producers to discuss the market.

Higher stock prices on Wall Street provided further support to oil and other dollar-denominated commodities.

Global crude benchmark Brent settled at $49.25 a barrel, up $1.12 or 2.3 percent.

U.S. oil’s benchmark West Texas Intermediate (WTI) crude rose 72 cents, or 1.6 percent, to finish at $46.26.

The discounting by Saudi of its oil for November is an indication of low demand, as well as its desire to compete for market share. This is in contrast to the signals of strong demand we are getting from China, and only further adds to the confusion in the current crude complex, and the ever-changing balance between supply and demand.

Crude oil increased to 46.40 USD/BBL on Monday October 5 from 45.54 USD/BBL in the previous trading day. Crude oil averaged 40.06 from 1946 until 2015, reaching an all time high of 145.31 in July of 2008 and a record low of 1.17 in February of 1946. (tradingeconomics.com)