Source: OilPrice.com, by Cyril Widdershoven
International oil markets could be heading towards a new war, as leading OPEC and non-OPEC producers are vying for increased stakes. The unexpected cooperation between OPEC and non-OPEC countries, instigated by the full support of Saudi Arabia (OPEC) and Russia (non-OPEC) has brought some stabilization to the crude markets for almost half a year. The expected crude oil price crisis has been averted, it seems, leaving enough room when looking at the fundamentals to a bull market in the coming months. As long as Saudi Arabia, Russia and some other major producers (UAE, Kuwait), are supporting a production cut extension, financials will be seeing some light at the end of the tunnel.
The effects of the 2nd shale oil revolution, as some have stated, have been mostly mitigated by a reasonably high compliance of OPEC and non-OPEC members to the agreed upon cuts, while geopolitical and security issues have prevented Libya, Iraq, Venezuela and Nigeria, from entering with new volumes. Stabilization in the crude oil market, as always, is not only fundamentals but also geopolitics and national interests. The latter now could also be the main threat to a successful extension of the OPEC production cuts in the coming months.
Fears are growing that OPEC’s leading producer, Saudi Arabia, is no longer happy with the overall effects it is generating by taking the brunt of the production cuts, while at the same time, other OPEC members, such as Iran and Iraq, are looking at production increases. Saudi Arabia’s other main rival Russia is also not sitting idle. Even if Moscow is still fully behind the official production cuts, Russian oil companies have been aggressively fighting for additional market share in Saudi Arabia’s main client markets, China, India and even Japan. Iraq and Iran, in contrast to what was expected, have been cutting away share in Europe.
Threatened by its own successful agreement, Saudi Arabia is now feeling the heat on all sides. Some analysts are even proponing a doomsday scenario, implying that Riyadh has lost its grip on the largest oil markets. U.S. shale oil is increasing its market share, while addressing European options at the same time. Russia, Iran and Iraq have been pushing for market share in Asia, while taking up Saudi share in Europe. Until now, Saudi officials such as minister of petroleum, Khalid Al Falih, and Aramco’s Nasser, have been keeping quiet. No real hardline stance has been publicized until now by the OPEC leader. This could however change dramatically if recent indicators are correct.
In an unexpected move, Saudi Arabia has reported that it will try to regain some market share in one of its former main markets, Europe. In a move to increase the attractiveness of taking Saudi crude, the Kingdom has plans to change the way it prices oil for Europe from July. The new pricing plans could be effective from July 1, mainly to increase the appeal of Saudi crude by making it easier for customers to hedge. Media sources have stated that Aramco will introduce its European exports price against the ICE settlement for the Brent benchmark after years of pricing its oil against the Brent Weighted Average (BWAVE). Both price references are part of the Brent benchmark used to price much of the world’s crude. Clients at present find it difficult to hedge the BWAVE. This development has partly been snowed under as Aramco also has lowered prices for the Mediterranean and some Asian clients. U.S. clients will however be looking at higher prices.
Read More Here: Saudi Arabia Vs. Russia: The Next Oil Price War | OilPrice.com