News / Economy

Gulf Oil Exporters' Rivalry Grows in Battle for Asian Buyers

FILE - Iraqi workers at the Rumaila oil refinery, near Basra, 340 miles (550 kilometers) southeast of Baghdad, Iraq.
FILE - Iraqi workers at the Rumaila oil refinery, near Basra, 340 miles (550 kilometers) southeast of Baghdad, Iraq.
Reuters
Middle Eastern oil exporters are locked in an increasingly fierce battle for the world's fastest-growing markets in Asia, as producers worldwide ship more crude east to compensate for shrinking demand from the United States and Europe.
 
The fight for the trillion-dollar Asian oil market has ended decades of comfortable dominance for Middle East producers, who faced so little competition that refiners in Asia complained of being charged a premium of a dollar or so per barrel above what buyers in Europe or the Americas paid.
 
The picture has changed as rising U.S. shale supply has sapped demand in the world's largest crude consumer for the imports it previously bought from Latin America and West Africa. In Europe, years of shaky economic performance and increasing fuel efficiency have shrunk Russia's traditional market.
 
With nowhere else to expand, producers are pushing for more sales in Asia. The competition will become even stronger if sanctions on Iran are lifted in coming months and the million barrels per day (bpd) in Iranian exports that have been cut off return to the market.
 
Under sanctions, Iran fueled competition by offering discounts, easy credit and free shipping to keep oil flowing. If sanctions are lifted, it may have to be even more aggressive to regain market share.
 
Amid these shifting market pressures, the Organization of the Petroleum Exporting Countries meets on Wednesday to consider adjusting its output target of 30 million bpd.
 
With oil prices well above $100 a barrel, OPEC is likely to leave the target unchanged for now, say delegates who will attend the meetings in Vienna.
 
“These market dynamics - rising Iraqi output, increase in non-OPEC production, particularly in North America, and the potential return of Iran over the longer term - are going to put downward pressure on oil futures and OPEC producers will face an increasing challenge going forward,” IHS oil consultant Victor Shum said.
 
Iran's shrinking supply has facilitated Iraq's expansion, providing Baghdad with ready made markets. Iraqi output is rising as international energy companies repair the damage wrought on its industry during years of sanctions and war.
 
Oil sales are paying for Iraq's reconstruction and, seeking to sell every barrel available, officials are playing hardball.
 
“We'll do our best to market the maximum amount of oil. We don't want to leave our available oil idle,” said a senior Iraqi official. “So good luck to everybody.”
 
Iraq will become China's second-largest supplier in 2014 if it succeeds in exporting the volume of crude it has committed to supply. Chinese firms have signed up for 882,000 bpd of Iraqi crude in 2014, up 68 percent from 2013.
 
A steep cut in prices for its main export crude, Basra Light, helped Iraq pass Iran to become China's fifth-largest supplier in 2013. Iraq has charged buyers a discount between $0.40 and $1.10 a barrel below Saudi's Arab Medium, down from premiums as compared to the Saudi grade a year ago.
 
Besides price cuts, Iraq also compensated some of its term customers for demurrage - shipping costs incurred while waiting to load crude at congested terminals, trade sources said.
 
Beyond Iran
 
Other Gulf neighbors have also ceded market share to Iraq. Baghdad wrested a supply contract for a new refinery in China away from Kuwait in early November.
 
Iraq should be wary of price competition, said one Kuwaiti source, since the country needs to secure money for long term development. “They may gain share in the short term but they should look at the long term,” said the Kuwaiti oilman.
 
Kuwait has, however, been forced to cut prices itself, valuing its export crude in December at the steepest discount in nearly four years to Saudi's Arab Medium.
 
Kuwait may also follow Iraq and Iran's lead in offering extended credit to Indian refiners.
 
In the United Arab Emirates, the Abu Dhabi National Oil Company (ADNOC) has made an unprecedented move to encourage more buyers by selling cargoes with no stipulated destination for the first time in 2014.
 
ADNOC is also offering its customers the flexibility to load oil from the UAE's Fujairah port, which is outside the Strait of Hormuz and cheaper for shippers than sailing through the strait to the oil port of Jebel Dhanna.
 
High Stakes
 
The stakes are high for exporters reliant on oil revenues to finance growing national budgets; they have to find a balance between retaining market share and steady income.
 
Despite more aggressive sales tactics, OPEC is likely to see its market share fall. In its annual oil outlook, the group said it could lose almost 8 percent of the market in the next five years to shale and other competing supply sources.
 
“The current oil price is at a level that producing countries want to maintain,” said a trader with a Chinese refiner. “But the market is long so they need to fight for market share.”
 
Savings         
 
The flip side of the competition between Middle East exporters is that Asian refiners are benefiting from cheaper oil bills.
 
Iraq and Kuwait have offered to extend the payment period for crude to 60 days from 30 days. That extra month of credit could save Indian refiners, for example, close to $300,000 a day on the nearly 1 million bpd of Iraqi and Kuwait crude they buy, one Indian refining source said.

You May Like

Video Protests Continue in Ferguson, Spread to Other US Cities

Missouri officials say deployment of more than 2,000 National Guard soldiers helps curb second night of rampant arson and looting in Midwestern town More

Video Ebola, Crackdown on Illegals Hit Business in Guangzhou

Chinese city has largest community of Africans in Asia More

Video Legendary Lebanese Actress, Singer Sabah Dies at 87

Music and film diva, affectionately called 'Sabbouha' by millions of her fans, performed at Carnegie Hall in New York, Royal Albert Hall in London, Olympia in Paris, Sydney Opera House in Sydney More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Changei
X
November 24, 2014 10:09 PM
Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Aung San Suu Kyi: Myanmar Opposition to Keep Pushing for Constitutional Change

Myanmar opposition leader Aung San Suu Kyi says she and her supporters will continue pushing to amend a constitutional clause that bars her from running for president next year. VOA's Than Lwin Htun reports from the capital Naypyitaw in this report narrated by Colin Lovett.
Video

Video Mali Attempts to Shut Down Ebola Transmission Chain

Senegal and Nigeria were able to stop small Ebola outbreaks by closely monitoring those who had contact with the sick person and quickly isolating anyone with symptoms. Mali is now scrambling to do the same. VOA’s Anne Look reports from Mali on what the country is doing to shut down the chain of transmission.
Video

Video Ukraine Marks Anniversary of Deadly 1930s Famine

During a commemoration for millions who died of starvation in Ukraine in the early 1930s, President Petro Poroshenko lashed out at Soviet-era totalitarianism for causing the deaths and accused today’s Russian-backed rebels in the east of using similar tactics. VOA’s Daniel Shearf reports from Kyiv.
Video

Video Hong Kong Protests at a Crossroads

New public opinion polls in Hong Kong indicate declining support for pro-democracy demonstrations after weeks of street protests. VOA’s Bill Ide in Guangzhou and Pros Laput in Hong Kong spoke with protesters and observers about whether demonstrators have been too aggressive in pushing for change.
Video

Video US Immigration Relief Imminent for Mixed-Status Families

Tens of thousands of undocumented immigrants in the Washington, D.C., area may benefit from a controversial presidential order announced this week. It's not a path to citizenship, as some activists hoped. But it will allow more immigrants who arrived as children or who have citizen children, to avoid deportation and work legally. VOA's Victoria Macchi talks with one young man who benefited from an earlier presidential order, and whose parents may now benefit after years of living in fear.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8048
JPY
USD
118.04
GBP
USD
0.6382
CAD
USD
1.1270
INR
USD
61.892

Rates may not be current.