(ಠ_ಠ)
2014-11-04 21:27:37 UTC
Seems Saudi Arabia is opening up its oil taps to compete with countries which
have been stock-piling oil supplies. Among those countries would be Canada and
the United States.
Lower, competing prices for oil at the source should mean lower prices for
consumers.
It could also mean the reduction of oil from the tarsands . . . which would
mean less CO2 emissions and less contribution to global warming. Saudi Arabia
still has 'flowing' oil resources with no fracking involved, so they can
extract it for a much lesser cost. We should all be thankful for this turn of
events in the oil industry - let Albertans put in a 5% PST tax like the rest of
the country and stop relying on money from pollution and destruction of our land.
____________________________________
http://www.reuters.com/LONDON Tue Nov 4, 2014
Saudi Arabia is not declaring a volume war (yet)
(Reuters) - Saudi Aramco cut the price of December crude deliveries to U.S.
refiners on Monday in order to protect its competitiveness amid an erosion of
its U.S. market share by rival exporters such as Canada and Iraq.
In August, U.S. crude imports from Saudi Arabia slipped below 900,000 barrels
per day, according to the U.S. Energy Information Administration.
With the exception of a brief period in 2009 and early 2010, Saudi exports to
the United States fell to the lowest level since 1988.
U.S. imports from Saudi Arabia in August were just 70 percent of the average
level for the past ten years which has been around 1.3 million barrels per day.
Saudi oil, which is priced at a differential to a U.S. sour crude marker, had
become too expensive compared with alternatives available to U.S. refiners.
So Saudi Aramco has been forced to cut the differentials for U.S. refiners by
between 45 and 50 cents (depending on grade) per barrel even as it raised
differentials for refiners in Europe and Asia.
RIVAL EXPORTERS
Some commentators have interpreted the U.S. price cuts as a signal the kingdom
is initiating a deliberate price-war targeting U.S. shale producers. The
reality is more complex.
Most Saudi exports to the United States are much heavier and certainly sourer
than the light sweet oils being produced from shale formations like North
Dakota’s Bakken and Texas’ Eagle Ford.
Aramco has therefore been spared head-to-head competition from rising U.S.
shale output, which has mostly fallen on U.S. imports from West Africa.
However, the company’s market share over the summer was hit by competition from
Iraq, Venezuela, Brazil and Canada, so Aramco has cut its prices in the region
to stabilize sales and buy back some of its lost share.
OFFICIAL PRICES
Saudi Aramco prices its crude sales against different benchmarks in the United
States, Europe and Asia and applies a different set of differentials in each
region to reach a final selling price.
Past experience suggests differentials are primarily used to offset variations
between the regional benchmarks to ensure Aramco’s crude sells at broadly the
same price in each region.
Final selling prices vary much less between the regions than the differentials
themselves.
For example, the differentials for Arab Medium grade delivered in December
range by more than $4 per barrel from a discount of $5.00 in Europe and $1.60
in Asia to a discount of just 65 cents in the United States.
But the outright prices (benchmark plus or minus the differential) currently
range just over $2 between the most expensive region (Asia) and the cheapest
(the United States).
For Arab Light, the differentials vary by $4.95 per barrel, but outright sales
prices currently vary by just $1.78.
MARKETING STRATEGY
Traders and refiners need liquid benchmarks to hedge their exposure to
fluctuations in crude. But none of the benchmarks closely resembles the grades
of oil marketed by Saudi Aramco, which is why the company has to apply large
and variable monthly adjustments to its selling prices via the differentials.
Saudi Aramco’s marketers attempt to ensure (1) refiners buy all the cargoes
which the company has on offer and (2) sales prices in the three regions are
broadly equalized.
The first point is obvious. Saudi oil has to be priced competitively with other
similar grades or refiners will buy something else instead.
The second is more subtle. Saudi exports are protected against inter-regional
arbitrage by destination clauses: oil sold to a refiner in the United States
cannot be diverted and resold to a refiner in Asia.
But other crudes can be arbitraged between the regions and so can the final
products produced from refined oil.
Refiners are all, to some extent, competing against one another in both the
market for buying crude and in the sale of refined products.
Aramco must price its crude to ensure its customers are not put at a
competitive disadvantage in either market.
While most Saudi oil is sold on long term contracts (with market-linked
pricing) Aramco would rapidly lose customers if its oil proved to be expensive
compared with other grades.
The potential for arbitrage in both crude and product markets ensures that
inter-regional differences in final selling prices are ordinarily no more than
$2-3 per barrel.
ARAMCO IS REACTIVE
Changes in official selling prices are often interpreted as evidence of a
“grand strategy” for market management by senior policymakers in Riyadh and
Dhahran.
For the most part, however, Saudi Aramco’s pricing strategy is reactive rather
than proactive. The company adjusts differentials in response to current and
forecast market conditions to maintain the competitiveness of its oil sales.
At the margin, Saudi Aramco can adjust differentials to push slightly more oil
into the market or hold sales back, as well as to alter the balance of sales
between regions.
But most of the changes in differentials are driven by the need to react to
external events (such as refining demand and the availability of competing
crudes) rather than Saudi strategy.
The distribution of Saudi sales to the three regions displays a high degree of
stability over time (in contrast to the differentials themselves).
In the case of the United States, Aramco’s crude was too expensive in June,
July and August, and export volumes slumped by almost 700,000 barrels per day.
Like any other marketer, to reverse some of those losses, Aramco has cut its
differentials to make its oil more attractive.
The price cuts will intensify the competitive pressure on U.S. shale producers,
but that is an indirect consequence of the policy, not its primary objective,
which is to maintain market share.
In any event, the Americas accounted for less than 20 percent of Saudi exports
in 2013, according to the U.S. Energy Information Administration.
In the much larger Asian market, which accounted for almost 70 percent of sales
in 2013, where Aramco’s oil has been competitive, the company has actually
boosted differentials for December sales by around $1 per barrel.
Changes in differentials in the U.S. market are not a sign that Saudi Aramco is
declaring a volume war on U.S. shale producers or other oil exporters (any more
than differential increases in Asia signal the opposite).
But that might be the unintended consequence if everyone tries to defend their
market share. Sooner or later someone somewhere has to cut: whether it is the
Saudis and OPEC, non-OPEC suppliers like Canada, U.S. shale producers, or all
of them.
have been stock-piling oil supplies. Among those countries would be Canada and
the United States.
Lower, competing prices for oil at the source should mean lower prices for
consumers.
It could also mean the reduction of oil from the tarsands . . . which would
mean less CO2 emissions and less contribution to global warming. Saudi Arabia
still has 'flowing' oil resources with no fracking involved, so they can
extract it for a much lesser cost. We should all be thankful for this turn of
events in the oil industry - let Albertans put in a 5% PST tax like the rest of
the country and stop relying on money from pollution and destruction of our land.
____________________________________
http://www.reuters.com/LONDON Tue Nov 4, 2014
Saudi Arabia is not declaring a volume war (yet)
(Reuters) - Saudi Aramco cut the price of December crude deliveries to U.S.
refiners on Monday in order to protect its competitiveness amid an erosion of
its U.S. market share by rival exporters such as Canada and Iraq.
In August, U.S. crude imports from Saudi Arabia slipped below 900,000 barrels
per day, according to the U.S. Energy Information Administration.
With the exception of a brief period in 2009 and early 2010, Saudi exports to
the United States fell to the lowest level since 1988.
U.S. imports from Saudi Arabia in August were just 70 percent of the average
level for the past ten years which has been around 1.3 million barrels per day.
Saudi oil, which is priced at a differential to a U.S. sour crude marker, had
become too expensive compared with alternatives available to U.S. refiners.
So Saudi Aramco has been forced to cut the differentials for U.S. refiners by
between 45 and 50 cents (depending on grade) per barrel even as it raised
differentials for refiners in Europe and Asia.
RIVAL EXPORTERS
Some commentators have interpreted the U.S. price cuts as a signal the kingdom
is initiating a deliberate price-war targeting U.S. shale producers. The
reality is more complex.
Most Saudi exports to the United States are much heavier and certainly sourer
than the light sweet oils being produced from shale formations like North
Dakota’s Bakken and Texas’ Eagle Ford.
Aramco has therefore been spared head-to-head competition from rising U.S.
shale output, which has mostly fallen on U.S. imports from West Africa.
However, the company’s market share over the summer was hit by competition from
Iraq, Venezuela, Brazil and Canada, so Aramco has cut its prices in the region
to stabilize sales and buy back some of its lost share.
OFFICIAL PRICES
Saudi Aramco prices its crude sales against different benchmarks in the United
States, Europe and Asia and applies a different set of differentials in each
region to reach a final selling price.
Past experience suggests differentials are primarily used to offset variations
between the regional benchmarks to ensure Aramco’s crude sells at broadly the
same price in each region.
Final selling prices vary much less between the regions than the differentials
themselves.
For example, the differentials for Arab Medium grade delivered in December
range by more than $4 per barrel from a discount of $5.00 in Europe and $1.60
in Asia to a discount of just 65 cents in the United States.
But the outright prices (benchmark plus or minus the differential) currently
range just over $2 between the most expensive region (Asia) and the cheapest
(the United States).
For Arab Light, the differentials vary by $4.95 per barrel, but outright sales
prices currently vary by just $1.78.
MARKETING STRATEGY
Traders and refiners need liquid benchmarks to hedge their exposure to
fluctuations in crude. But none of the benchmarks closely resembles the grades
of oil marketed by Saudi Aramco, which is why the company has to apply large
and variable monthly adjustments to its selling prices via the differentials.
Saudi Aramco’s marketers attempt to ensure (1) refiners buy all the cargoes
which the company has on offer and (2) sales prices in the three regions are
broadly equalized.
The first point is obvious. Saudi oil has to be priced competitively with other
similar grades or refiners will buy something else instead.
The second is more subtle. Saudi exports are protected against inter-regional
arbitrage by destination clauses: oil sold to a refiner in the United States
cannot be diverted and resold to a refiner in Asia.
But other crudes can be arbitraged between the regions and so can the final
products produced from refined oil.
Refiners are all, to some extent, competing against one another in both the
market for buying crude and in the sale of refined products.
Aramco must price its crude to ensure its customers are not put at a
competitive disadvantage in either market.
While most Saudi oil is sold on long term contracts (with market-linked
pricing) Aramco would rapidly lose customers if its oil proved to be expensive
compared with other grades.
The potential for arbitrage in both crude and product markets ensures that
inter-regional differences in final selling prices are ordinarily no more than
$2-3 per barrel.
ARAMCO IS REACTIVE
Changes in official selling prices are often interpreted as evidence of a
“grand strategy” for market management by senior policymakers in Riyadh and
Dhahran.
For the most part, however, Saudi Aramco’s pricing strategy is reactive rather
than proactive. The company adjusts differentials in response to current and
forecast market conditions to maintain the competitiveness of its oil sales.
At the margin, Saudi Aramco can adjust differentials to push slightly more oil
into the market or hold sales back, as well as to alter the balance of sales
between regions.
But most of the changes in differentials are driven by the need to react to
external events (such as refining demand and the availability of competing
crudes) rather than Saudi strategy.
The distribution of Saudi sales to the three regions displays a high degree of
stability over time (in contrast to the differentials themselves).
In the case of the United States, Aramco’s crude was too expensive in June,
July and August, and export volumes slumped by almost 700,000 barrels per day.
Like any other marketer, to reverse some of those losses, Aramco has cut its
differentials to make its oil more attractive.
The price cuts will intensify the competitive pressure on U.S. shale producers,
but that is an indirect consequence of the policy, not its primary objective,
which is to maintain market share.
In any event, the Americas accounted for less than 20 percent of Saudi exports
in 2013, according to the U.S. Energy Information Administration.
In the much larger Asian market, which accounted for almost 70 percent of sales
in 2013, where Aramco’s oil has been competitive, the company has actually
boosted differentials for December sales by around $1 per barrel.
Changes in differentials in the U.S. market are not a sign that Saudi Aramco is
declaring a volume war on U.S. shale producers or other oil exporters (any more
than differential increases in Asia signal the opposite).
But that might be the unintended consequence if everyone tries to defend their
market share. Sooner or later someone somewhere has to cut: whether it is the
Saudis and OPEC, non-OPEC suppliers like Canada, U.S. shale producers, or all
of them.
