Saudi Arabia Plays Hardball for Greater Asian Market Share

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By Jacob Maslow

nabawi mosque
Nabawi Mosque, Medina, Saudi Arabia in the evening.

It is no secret that one of the main reasons why the price of crude oil is so low is due to Saudi Arabia’s drive to protect its market share. Based on its March oil sales to Asia, Saudi Arabia looks like it is playing hardball. We are not just talking about selling oil at already discounted low market prices. Instead, Saudi Arabia is offering substantial discounts on top of the already low price of global oil. How much discounts are we talking about?

According to the figures released by the state-owned Saudi Arabian Oil Company, its official selling price in Asia is anywhere from $0.90-$2.30 per barrel lower than the official Midde East benchmarks. The global marketplace hasn’t seen oil selling for this low in more than 14 years. If this isn’t proof that Saudi Arabia is out for blood as far as market share is concerned, then I don’t know what is.

This is the smoking gun to Saudi Arabia’s firm resolution to protect and grow its market share in China. Keep in mind that China has made a lot of infrastructure changes and built a lot of infrastructure to source oil from as many different places as possible. It doesn’t want to be dependent on any one source. However, considering the steep discounts Saudi Arabia is extending, it is very tempting for the relatively fast-growing Chinese economy to source much of its energy from the Middle East.

The competition is heating up. According to production and shipping figures, Middle Eastern oil producers are increasingly locking horns with producers in Russia, Africa and Latin America for the Asian market. The Asian market is hot, and China is the number one target for oil producers. It is fast becoming a race to the bottom.

Who knows what other unofficial pricing is floating out there? The Russians are quite well known for cutting under the table deals. The only reason why we are aware that Saudi Arabia is undercutting official Middle East benchmark prices is because Bloomberg Business broke the news. Who knows how steep Russian, Nigerian, and possibly Venezuelan oil deals are as far as the Chinese market is concerned?


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