Iran Matches Saudi Oil Discounts in Bear Market for Crude

Updated on
Iran Oil
An oil tanker is seen off the port of Bandar Abbas, southern Iran. Photographer: Atta Kenare/AFP/Getty Images

Iran will sell its oil to Asia in November at the biggest discount in almost six years, matching cuts by Saudi Arabia as global crude benchmarks slide deeper into a bear market.

State-run National Iranian Oil Co. cut official selling prices of its crude to buyers in Asia for November, two people with knowledge of the pricing decision said yesterday. The decrease came a week after Saudi Arabia, the world’s largest oil exporter, reduced the price of Arab Light crude for Asia to the lowest since December 2008. Brent crude, the international benchmark, fell to the lowest in almost four years today.

“The timing of Iran’s price cuts makes the price war more and more probable,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by phone yesterday. “Iran is fully aware of the direction of and the mood in the market. Given that we’ve seen consecutive cuts, this would seem to be some kind of action and reaction.”

Middle Eastern oil producers are facing greater competition in Asia, their largest market. Cargoes from the U.S., Russia and Latin America are finding buyers there amid a surplus on international markets. The pace of demand growth is lower in the region as the economy slows in China, the world’s second-largest oil consumer.

Futures for Brent and West Texas Intermediate, the U.S. benchmark, have both fallen more than 20 percent from their June peaks, meeting the common definition of a bear market. Front-month Brent traded as low as $88.11 a barrel today on the ICE Futures Europe exchange in London, the lowest since December 1, 2010. WTI dropped as low as $83.33 a barrel on the New York Mercantile Exchange, the lowest since July 3, 2012.

Arab Light

State-owned Saudi Arabian Oil Co. on Oct. 1 cut prices for all grades and to all regions for November. The Asian price of Arab Light was cut by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crudes, the benchmark published by Platts, the energy-information division of McGraw-Hill Cos.

Commerzbank and Citigroup Inc. were among those who said the cuts might be the start of a price war among members of the Organization of Petroleum Exporting Countries seeking to maintain market share.

Tehran-based NIOC will sell Iranian Light, the country’s main export grade, to buyers in Asia next month at a discount of 82 cents a barrel to the average of Oman and Dubai, according to the two people who asked not to be identified because the information has not yet been released publicly. That’s $1 lower than the October price and the biggest discount since December 2008, matching the Saudi move, according to data compiled by Bloomberg. Both countries have cut the cost to Asian buyers of their main export grades for four months straight.

OPEC Competition

“Fluctuations that we are witnessing in prices aren’t called price-reduction wars,” Iranian Oil Minister Bijan Namdar Zanganeh said in comments reported by the ministry’s news website Shana on Oct. 7.

Saudi Arabia cut its oil prices to boost margins for Asian refiners who couldn’t process the crude profitably, not to start a price war, a person familiar with the nation’s oil policy said Oct. 8.

OPEC members in West Africa are also experiencing lower demand for their crude oil and showing signs of greater price competition, said Julian Lee, an oil strategist at Bloomberg First Word in London.

“Nigerian sales have been much slower than usual,” Lee said. “The big difference appears to be in price, with Angola reacting more quickly to the weakening market.”

About half of Nigeria’s planned November exports remain unsold, while 75 percent would usually have found buyers by this time, Lee said. Angola has managed to sell about 85 percent of its cargoes for the month, he said.

OPEC members “are denying that a price war is starting because it’s not in their long-term interest,” Commerzbank’s Weinberg said. People will be watching for the release of Kuwait’s and Iraq’s crude prices, expected next week, and “it will be difficult for them not to give in and cut.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE