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

India PM Modi's Party Distances Itself From Religious Conversions

BJP under fire for being slow to rein in hardline affiliate groups allegedly trying to promote Hindu-dominant agenda by luring Muslims and Christians to convert More

Anti-Whaling Group Found in Contempt of Court

Radical environmentalists who threw acid and smoke bombs at Japanese whalers in the waters off Antarctica continue their campaign to disrupt Japan's annual whale hunt More

UN's Ban Urges End to Discrimination Against Ebola Workers

Ban was speaking in Guinea on the second day of a whistle-stop tour aimed at thanking healthcare workers of the countries at the heart of the epidemic More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Decision on Cuba Underscores Divisions Among Miami Cubansi
X
Sharon Behn
December 19, 2014 9:34 PM
For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video US Decision on Cuba Underscores Divisions Among Miami Cubans

For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Cuba Deal is Major Victory for Pope’s Diplomatic Initiatives

Pope Francis played a key role in brokering the US-Cuba deal that was made public earlier this week. It is the most stunning success so far in a series of peacemaking efforts by the pontiff. VOA religion reporter Jerome Socolovsky has more.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.