Saudi Aramco Cuts Oil Pricing for Europe Where Russia Dominates

(Bloomberg) -- Saudi Arabia lowered oil pricing for European customers, a sign the world’s biggest crude exporter is seeking to expand market share in the region dominated by Russia.

State-owned Saudi Arabian Oil Co. lowered its official selling pricing for all grades to northwest Europe for the second straight month, along with all prices to the Mediterranean and some to Asia, against regional benchmarks. It raised the pricing of all sales to the U.S., it said Wednesday in an emailed statement.

European oil demand posted two consecutive years of growth in 2015-16, something last seen in the mid 1990s, the International Energy Agency said in a March report. Saudi Arabia supplied 42.5 million metric tons of crude, natural gas liquids and refinery feedstocks to European nations in the Organisation for Economic Cooperation and Development last year, ranking fourth after the former Soviet Union, Norway and Iraq, according to IEA data.

“European markets had been written off for a couple of years but now are seeing a decent size of demand growth,” Edward Bell, commodities analyst at Emirates NBD, said by phone from Dubai. “Holding on to that at the expense of pushing Russian barrels out will be quite important” to Saudi Arabia.

Saudi Arabia’s pricing in Europe caught Russia’s attention less than two years ago before the two nations started talks to curb crude output. State-run Rosneft PJSC, Russia’s biggest crude supplier, in 2015 said the Saudis were “ dumping’’ in Europe to expand market share. There is a risk price wars may resume in Europe, raising the possibility the output cut agreement won’t be extended to the second half of this year, Rosneft said last month.

Aramco cut the May pricing of Arab Light crude to northwest Europe by 45 cents a barrel from April, to a $4.35 discount to the benchmark. It cut Arab Light to Asia by 30 cents, to a 45-cent discount. The company was forecast to cut the Asia pricing by 35 cents a barrel, according to the median estimate in a Bloomberg survey of five refiners and traders.

This month’s price cuts could trigger similar moves from other oil exporters as they battle for their share of key markets, Bell said. “It’s usually a race to the bottom.”

In a further concession to European refiners, Aramco will tweak the benchmark it uses in the region to make it easier for crude buyers to hedge their purchases, according to a letter obtained by Bloomberg. The change will take effect on July 1.

With assistance from Sharon Cho and Serene Cheong.To contact the reporters on this story: Sam Wilkin in Dubai at swilkin1@bloomberg.net; Elena Mazneva in Moscow at emazneva@bloomberg.net To contact the editors responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net John Deane

Copyright 2017 Bloomberg News.

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