Insight
Saudi Arabia cuts prices after agreeing to cut production
Report summary
Saudi Arabia’s new OSPs tell us that Aramco is focused on securing market share in Asia, the largest market for its crude exports. Asia has been its target because that is where oil demand has the highest growth rate when in normal conditions and the netbacks for Saudi Arabia are the most profitable. We regard the discounted OSPs not a continuation of the price war, but rather a competitive pricing strategy in the long running jostling for market share in the key Asia market. With these discounts, it is ensuring that it does not lose out in gaining access to buyers, even in an incredibly weak demand market. Other suppliers looking to position themselves in Asia will have to pay close attention to the Saudi's pricing strategy for Asia. This crude market share competition is expected to be beneficial for the refiners at a time when weak demand has been hitting refining margins badly. Refiners should take advantage of the ample crude choices to maximise their margins.
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