Russell: Saudi Arabia's Oil Price Hike To Asia May Be Self-Harming

It does seem that the Saudis are using pricing to try to tighten supply to Asia, which buys about two-thirds of the kingdom's exports.

This would fit alongside with the kingdom's stated aim of boosting prices by cutting output, along with other members of the Organization of the Petroleum Countries (OPEC) and allied producers such as Russia.

The Saudis are leading the efforts to lower output by a combined 1.8 million barrels per day (bpd), a move that aims to drain inventories by enough to lift prices over the longer run.

China Data Shows The Saudi Dilemma

But while it's relatively easy for the Saudis to increase their OSP by more than their customers expected, it's less easy to fight off competitors from outside the agreement to restrict production.

China, the world's biggest crude importer, is a case in point.

Saudi Arabia supplied 3.956 million tonnes of crude to China in April, according to customs figures released on May 23, taking their year-to-date total to 18.314 million.

This gave the Saudis a share of Chinese imports of 11.5 percent in April, lower than their January-April share of 13.2 percent.

What is probably more worrying for the Saudis is that their market share in China is heading in the wrong direction, given it was 13.4 percent for the whole of 2016.

In contrast, the share of Chinese imports enjoyed by Brazil, a producer outside the OPEC and allies agreement, is rising.

Brazil's share in the first four months of the year was 5.4 percent, up from 5 percent for the whole of the 2016.

And in a further sign that the Chinese are broadening their base of crude suppliers, the United States gained a 0.9 percent share of imports in the first four months of 2017, up from a negligible 0.13 percent in 2016.

While it's true that suppliers such as Brazil and the United States are minnows compared to Saudi Arabia and Russia when it comes to meeting China's oil needs, the point is that they seem able to take up the slack of any lower shipments from producers that may be restricting output.

And it's not only volumes that make disturbing reading for the Saudis and their allies, it's pricing as well.

Chinese data shows that the average price paid per tonne of crude oil in April was $379.81, or about $52.03 a barrel.


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