Saudi Arabia cuts oil price to Asia as battle with Iran heats up

Dubai

SAUDI Aramco, the world's largest oil exporter, lowered the pricing terms for Arab Light crude sold to Asia by the most in 10 months, signalling that Saudi Arabia has no plans to back down while Organization of the Petroleum Exporting Countries (Opec) rival Iran tries to regain market share amid a global oversupply.

State-owned Saudi Arabian Oil Co said on Sunday that it will sell cargoes of Arab Light in September at US$1.10 a barrel below Asia's regional benchmark. That is a pricing cut of US$1.30 from August, the biggest drop since November, according to data compiled by Bloomberg.

The company was expected to lower the pricing by US$1 a barrel, according to the median estimate in a Bloomberg survey of eight refiners and traders.

Iran has boosted crude production 25 per cent this year and aims to reach an eight-year high for daily output of four million barrels by the end of the year.

Customers in Asia account for the largest share of Iran's new sales, according to shipping data. The nation dropped to fourth biggest Opec producer after international sanctions that restricted its supplies in 2012. It has since returned to third place after the sanctions were eased in January. Saudi Arabia has responded by boosting its crude and refined products exports.

"The market share battle between them and Iran is back on in a big way," John Kilduff, partner at Again Capital LLC in New York, said on Sunday. "This is a throwdown challenge that I'm sure the Iranians will match."

Asian demand for crude is stalling as refineries from Singapore to China and South Korea are cutting operating rates amid a slump in margins and rising supply from state-owned giants, which can draw on large crude inventories that have built up over the past two years of low prices.

Brent crude has climbed 17 per cent since the start of the year on supply disruptions from Nigeria to Canada. Prices are still 12 per cent lower in the past year.

Saudi Arabia led the November 2014 decision by Opec to maintain production levels to drive out higher- cost producers.

All other official selling prices for Asian clients were reduced. The biggest cut was by US$1.60 for Extra Light crude.

Pricing for Light and Extra Light grades for US clients was cut, by 20 US cents and 40 US cents, respectively, while the Medium and Heavy grades were unchanged.

Aramco raised the pricing of all grades except Extra Light to north-west Europe and the Mediterranean. BLOOMBERG