The Saudis are dumping to the detriment of Russia
Material posted: Publication date: 09-02-2015

The Saudis are dumping on the oil market, lowering prices for Asian clients. In China, falling Saudi oil may soon start to compete with more expensive Russian, analysts warn.

Saudi Arabia lowers oil prices for customers in Asia. National company SA Saudi Arabian Oil lowered the supply price of oil Arab Light grade for us $0.9 per barrel.

Now Saudi oil by $2.3 cheaper oil major suppliers to the middle East (Oman and Dubai). This is the biggest discount in 14 years, according to Bloomberg.

Arab Light on the exchanges is not quoted, however, by estimations of an analyst of Bank "URALSIB" Alexey Kokina, now its price is $55,23 per barrel.

The intention to cut prices for Asian consumers, the Saudis (and Kuwait and Iraq) announced at the end of last year. The matter was about the decline of $2-4 per barrel, and a statement that sounded after in November 2014 the Organization of countries — exporters of oil (OPEC) with the filing of the same Saudi Arabia refused to cut oil production to sustain falling oil prices. The Saudis then said that low oil prices will remove from the market of inefficient producers, the oil which competes with Saudi in the first place are companies which produce shale oil in the USA.

But the number of competitors is also called Brazil and Russia. While CA have stated that can withstand low prices for several years, as the cost of extraction of Saudi oil is only $4-5 per barrel.

However, at the end of January already Saudi Arabia said that oil has "fallen too far", but noted that it will not attempt to balance the market. At that time, oil hovered around $48-49 per barrel. Now there is a certain rise. So, on Friday, North sea Brent crude oil, which is tied to the price of Russian Urals, was trading just above $58 per barrel. Industry experts for several days it is said that in the near future quotations may break through the psychological mark of $60.

"Now the declared reduction of prices on the March futures for Asia is not an attempt to exert pressure on world prices, — says Vice-President of Argus Vyacheslav Mishchenko. Is an attempt to maintain its global market share at the expense of the Asia-Pacific region."

According to the expert, the Saudis are forced to shift from the North American market to other markets. And now SA has to compete in Asia with its neighbours in the Persian Gulf, Oman and Dubai.

A similar view was expressed by Alexey Kokin. "For world oil prices lowering the price of Saudi oil, of course, is a negative — one player is clearly trying to beat the other due to the price war, but in the moment of impact on the stock has no", — said the expert.

But Kokin prevents that, for example, in the Chinese market the oil from Saudi Arabia may begin to compete with Russian raw materials. According to the analyst, the price of Russian deliveries to China is now about $59 per barrel.

However, Kokin notes that almost all mined now in SA volumes already contracted, and to increase the share in the Chinese market, the Saudis will have to increase production. But Saudi Arabia is not a problem.
The fact of the struggle for the Chinese market indirectly confirmed by customs statistics of the PRC, published in late January. According to China customs, China last year reduced the purchase of Saudi oil by 8%, and Russia — increased by 36%. The share of Saudi Arabia in the Chinese oil market fell from 19 to 16%, and the share of Russia increased from 9% to 11%.

The main supplier of Russian oil to China is "Rosneft". 2013, the company signed several large contracts to supply oil to China. The largest deal was the extension of the agreement from 2009, according to which Rosneft supplies China's CNPC 15 mln tons of oil per year. In June 2013 the Russian company agreed on additional supplies of 15 million tonnes for 25 years. In October 2013, Rosneft also signed a MOU with China's Sinopec. The parties agreed on annual supplies of 10 million tons of Russian oil to China for ten years starting in 2014. While supplies are not in full, but every year increasing.

The head of "Rosneft" Igor Sechin in the beginning of February, said the company in 2015 intends to increase supplies to China by 27% compared with 2014, that is up to 29 million tons. The total volume of deliveries by the Eastern route, this year is expected to reach 32 million tons (+30% from the previous year).

On a question, whether is afraid "Rosneft" competition in the PRC market from Saudi Arabia's state-owned companies did not answer, only stressing that Rosneft "carries out delivery terms, secured contracts for the next few years, in equal measure, as does the Chinese side".

Aleksey Topalov


Tags: Russia , oil