Oil slides after Saudi Arabia cuts prices in US
2014-12-05 11:57:01
Oil prices fell sharply on Tuesday after Saudi Arabia on Monday lowered the price it charges customers in the US in an effort to prop up its share of the American market.
West Texas Intermediate fell as much as 2 per cent in early trade on Tuesday to a three-year low of $77.20 a barrel, while the benchmark Brent crude fell as much as 2 per cent to $83.12.
Although Saudi Arabia increased the price it charges customers in Asia and Europe for its crude oil for the first time in five months, the selling price to the US was cut from the prior month.
In the US, the price of Saudi imports was set at a premium of $1.60 a barrel to the Argus Sour Crude Index for December, down 45 cents from November. Saudi Aramco, the state-owned oil company, said it would sell its benchmark Arab light to customers in Asia at a discount of 10 cents a barrel to the Dubai/Oman contract in December, up from a discount of $1.05 in November.
Despite the market selling, some analysts said the kingdom’s moves were in line with market fundamentals.
JBC Energy, the Vienna based oil consultancy, said: “In our view the kingdom is simply doing what it always does: supplying crude to the market at the market price.”
It warned market participants not to interpret the monthly changes in customer prices “in the context of ‘price war’ and ‘market share battle’”.
Amrita Sen at Energy Aspects said the Saudis were looking to increase export volumes to the US ahead of “US refineries returning from maintenance and being set to raise runs”.
Saudi exports in August fell to the lowest since December 2009, as the kingdom pulled back exports in an attempt to improve revenues by reducing pricing pressure on US domestic crudes, she said.
Concerns about a global supply glut amid weaker demand drove the benchmark oil price to its lowest level in almost four years last month. Since reaching $115 a barrel in mid June, Brent, the international oil marker, has fallen 25 per cent, while West Texas Intermediate, the US equivalent, is down by a similar amount.
Saudi Arabia cut its official prices last month for the fourth consecutive month, fuelling speculation among some analysts that the kingdom had embarked on a price war in Asia to fight for market share. Other analysts said, however, that Riyadh was responding to customer demand.
The move to raise Asian prices on Monday reflected recent demand, particularly China, said oil specialists.