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.
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.”
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

Map Shows Every US School Shooting Since 2013

There have been at least 150 school shootings in the United States since 2013, an average of nearly one per week More

Video In US, Columbus Day Still Generates Controversy

Holiday marks date Columbus discovered Americas, but some are offended by legacy because he enslaved many natives he encountered More

Video Kickboxing Champion Shares Sport With Young Migrants

Pouring into Europe by hundreds of thousands, some migrants, especially youngsters, are finding sports a way to integrate into new host countries More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemeni
Henry Ridgwell
October 12, 2015 4:03 PM
The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video Amnesty Accuses Saudi Coalition of ‘War Crimes’ in Yemen

The human rights group Amnesty International has accused the Saudi-led coalition of war crimes in airstrikes against Houthi rebels in Yemen. Henry Ridgwell reports the group says hundreds of civilians have been killed in strikes on residential areas.

Video No Resolution in Sight to US House Speaker Drama

Uncertainty grips the U.S. Congress, where no consensus replacement has emerged to succeed Republican House Speaker John Boehner after his surprise resignation announcement. Half of Congress is effectively leaderless weeks before America risks defaulting on its national debt and enduring another partial government shutdown.

Video New Art Exhibit Focuses on Hope

Out of struggle and despair often comes hope. That idea is behind a new art exhibit at the American Visionary Art Museum in Baltimore, Maryland. "The Big Hope Show" features 25 artists, some of whom overcame trauma and loss. VOA’s Deborah Block reports.

Video Columbus Day Still Generates Controversy as US Holiday

The second Monday of October is Columbus Day in the United States, honoring explorer Christopher Columbus and his discovery of the Americas. The achievement is a source of pride for many, but for some the holiday is marked by controversy. Adrianna Zhang has more.

Video Anger Simmers as Turks Begin to Bury Blast Victims

The Turkish army carried out new air strikes on Kurdistan Workers Party (PKK) targets on Sunday, a day after the banned group announced a unilateral cease fire. The air raids apparently are in retaliation for the Saturday bombing in Turkey's capital Ankara that killed at least 95 people and wounded more than 200 others. But as Zlatica Hoke reports, there are suspicions that Islamic State is involved.

Video Bombings a Sign of Turkey’s Deep Troubles

Turkey has begun a three-day period of mourning following Saturday’s bomb attacks in the capital, Ankara, that killed nearly 100 people. With contentious parliamentary elections three weeks away, the attacks highlight the challenges Turkey is facing as it struggles with ethnic friction, an ongoing migrant crisis, and growing tensions with Russia. VOA Europe correspondent Luis Ramirez reports.

Video Afghanistan’s Progress Aided by US Academic Center

Recent combat in Afghanistan has shifted world attention back to the central Asian nation’s continuing civil war and economic challenges. But, while there are many vexing problems facing Afghanistan’s government and people, a group of academics in Omaha, Nebraska has kept a strong faith in the nation’s future through programs to improve education. VOA’s Greg Flakus has more from Omaha, Nebraska.

Video House Republicans in Chaos as Speaker Favorite Withdraws

The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video German, US Officials Investigate Volkswagen

German officials have taken steps to restore some of the reputation their car industry has lost after a recent Volkswagen diesel emissions scandal. Authorities have searched Volkswagen headquarters and other locations in an effort to identify the culprits in the creation of software that helps cheat on emission tests. Meanwhile, a group of lawmakers in Washington held a hearing to get to the bottom of the cheating strategy that was first discovered in the United States. Zlatica Hoke reports.

Video Why Are Gun Laws So Hard for Congress to Tackle?

Since taking office, President Barack Obama has spoken out or issued statements about 15 mass shootings. The most recent shooting, in which 10 people were killed at a community college, sparked outrage over the nation's gun laws. But changing those laws isn't as easy as many think. VOA's Carolyn Presutti reports.

Video In 'He Named Me Malala,' Guggenheim Finds Normal in Extraordinary

Davis Guggenheim’s documentary "He Named Me Malala" offers a probing look into the life of 18-year-old Malala Yousafsai, the Pakistani teenager who, in 2012, was shot in the head by the Taliban for standing up for her right to education in her hometown in Pakistan's Swat Valley. Guggenheim shows how, since then, Malala has become a symbol not as a victim of brutal violence, but as an advocate for girls’ education throughout the world. VOA’s Penelope Poulou has more.

Video Paintable Solar Cells May Someday Replace Silicon-Based Panels

Solar panels today are still factory-manufactured, with the use of some highly toxic substances such as cadmium chloride. But a researcher at St. Mary’s College, Maryland, says we are close to being able to create solar panels by painting them on a suitable surface, using nontoxic solutions. VOA’s George Putic reports.

VOA Blogs

World Currencies


Rates may not be current.