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

Turkey: No Ransom Paid for Release of Hostages Held by IS Militants

President Erdogan hails release of hostages as diplomatic success but declines to be drawn on whether their release freed Ankara's hand to take more active stance against insurgents More

Audio Sierra Leone Ends Ebola Lockdown

Health ministry says it has reached 75 percent of its target of visiting 1.5 million homes to locate infected, educate population about virus More

US Pivot to Asia Demands Delicate Balancing Act

As tumult in Middle East distracts Obama administration, efforts to shift American focus eastward appear threatened More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Saving Global Fish Stocks Starts in the Kitcheni
X
September 22, 2014 11:42 AM
With an estimated 90 percent of the world’s larger fish populations having already vanished, a growing number of people in the seafood industry are embracing the concept of sustainable fishing and farming practices. One American marine biologist turned restaurateur in Thailand is spreading the word among fellow chefs and customers. VOA Correspondent Steve Herman reports from Bangkok.
Video

Video Saving Global Fish Stocks Starts in the Kitchen

With an estimated 90 percent of the world’s larger fish populations having already vanished, a growing number of people in the seafood industry are embracing the concept of sustainable fishing and farming practices. One American marine biologist turned restaurateur in Thailand is spreading the word among fellow chefs and customers. VOA Correspondent Steve Herman reports from Bangkok.
Video

Video For West Ukraine City, Conflict Far Away Yet Near

The western Ukrainian city of Lviv prides itself on being both physically and culturally close to Western Europe. The Russian-backed separatists in the eastern part of the country are 1,200 kilometers away, and seemingly even farther away in their world view. Still, as VOA’s Al Pessin reports, the war is having an impact in Lviv.
Video

Video Chinese Admiral Key in China’s Promotion of Sea Links

China’s President last week wrapped up landmark visits to India, Sri Lanka and Maldives, part of a broader campaign to promote a new “Maritime Silk Road” in Asia. The Chinese government’s promotion efforts rely heavily on the country’s best-known sailor, a 15th century eunuch named Zheng He. VOA's Bill Ide reports from the sailor’s hometown in Yunnan on the effort to promote China’s future by recalling its past.
Video

Video Experts Fear Ebola Outbreak ‘Beyond Our Capability to Contain’

Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Natural Gas Export Plan Divides Maryland Town

A U.S. power company that has been importing natural gas now wants to export it. If approved, its plant in Lusby, Maryland, would likely be the first terminal on the United States East Coast to export liquefied natural gas from American pipelines. While some residents welcome the move because it will create jobs, others oppose it, saying the expansion could be a safety and environmental hazard. VOA’s Deborah Block examines the controversy.
Video

Video Difficult Tactical Battle Ahead Against IS Militants in Syria

The U.S. president has ordered the military to intensify its fight against the Islamic State, including in Syria. But how does the military conduct air strikes in a country that is not a U.S. ally? VOA correspondent Carla Babb reports from the Pentagon.
Video

Video Iran, World Powers Seek Progress in Nuclear Talks

Iran and the five permanent members of the U.N. Security Council plus Germany, known as the P5 + 1, have started a new round of talks on Iran's nuclear program. VOA State Department correspondent Pam Dockins reports that as the negotiations take place in New York, a U.S. envoy is questioning Iran's commitment to peaceful nuclear activity.
Video

Video Alibaba Shares Soar in First Day of Trading

China's biggest online retailer hit the market Friday -- with its share price soaring on the New York Stock Exchange. The shares were priced at $68, but trading stalled at the opening, as sellers held onto their shares, waiting for buyers to bid up the price. More on the world's biggest initial public offering from VOA’s Bernard Shusman in New York.
Video

Video Migrants Caught in No-Man's Land Called Calais

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Westgate Siege Anniversary Brings Back Painful Memories

One year after it happened, the survivors of the terror attack on Nairobi's Westgate Shopping Mall still cannot shake the images of that tragic incident. For VOA, Mohammed Yusuf tells the story of victims still waiting for the answer to the question 'how could this happen?'
Video

Video Whaling Summit Votes to Uphold Ban on Japan Whale Hunt

The International Whaling Commission, meeting in Slovenia, has voted to uphold a court ruling banning Japan from hunting whales in the Antarctic Ocean. Conservationists hailed the ruling as a victory, but Tokyo says it will submit revised plans for a whale hunt in 2015. Henry Ridgwell reports from London.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.

AppleAndroid

World Currencies

EUR
USD
0.7768
JPY
USD
108.84
GBP
USD
0.6124
CAD
USD
1.0999
INR
USD
61.042

Rates may not be current.