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Saudi offers of extra oil in Asia fail to lure interest in cutthroat market
[SINGAPORE] Saudi Arabia failed to attract offers for additional oil cargoes for loading in October, industry sources said, in a sign that the market remains over supplied despite recent production cuts.
The offers were made to some customers in Asia ahead of maintenance at a major Saudi refinery, two sources close to the matter said, as the world's biggest crude exporter seeks to maintain its market share in Asia.
Yet in a sign of the ongoing price war between producers and the surplus supplies, potential buyers who received the offers said they were too prompt in delivery, adding that cheaper alternatives such as Iraq's Basra crude were also available.
"Even if the November OSPs (Official Selling Prices) are attractive, we do not have room to take more," one of the potential buyers said, declining to be named due to company policy.
Refinery maintenance across Asia in the third quarter has also curbed the appetite for more crude in the region.
Oil prices started plunging in June 2014 as soaring US shale output added to near-record production by the Organization of the Petroleum Exporting Countries (Opec) and Russia, creating a glut of several million barrels per day (bpd) and resulting in a more than 50 per cent drop in prices.
Instead of cutting output, Opec decided to keep pumping in a bid to protect its Asian market share against rising competition.
Production in Opec-leader Saudi Arabia has so far remained high, with September's output of 10.23 million bpd close to June's record of around 10.5 million bpd.
Saudi crude production in the first nine months of 2015 hit 10.21 million bpd, up from 9.69 million bpd in 2014, Reuters data showed.
In response to falling profits and the global glut, US energy firms cut oil rigs for a sixth week in a row last week, bringing the total rig count to 605, the least since July, 2010.
"Saudi Arabia's strategy of targeting market share amongst key Asian consumers remains at play," said Virendra Chauhan, an analyst at consultancy Energy Aspects. "It's a buyers' market at the moment so Saudi will be looking to place its barrels aggressively or risk losing out," he added.
Despite this strategy, Saudi may trim output further in October as domestic demand drops following the peak consumption summer months and because of maintenance at PetroRabigh's 400,000 bpd refinery. The Yasref refinery has also cut operating rates to 75 per cent, down from full capacity in July.
"We see 10-10.1 million bpd as the new norm for Saudi production given that more crude will be consumed domestically with the two new refineries ramping up to capacity," Mr Chauhan said.