Saudi Arabia is said to be in talks with Indian oil buyers to ship crude on the Middle East supplier’s own tankers, potentially cutting the cost of cargoes.
While the world’s biggest crude exporter won’t offer to sell its crude at a discount to its official selling price, it may pass on the benefit of lower shipping costs, four people with knowledge of the matter said, asking not to be identified because the talks are confidential. The use of vessels owned by Saudi Arabia may reduce the cost of its supplies by 25 to 30 cents a barrel, two officials at two Indian refiners said.
OPEC’s biggest member is seeking to defend market share amid competition from other suppliers and as refiners across Asia look for bargains from Europe to Mexico. Producers are vying for sales as a global glut is exacerbated by the highest U.S. output in more than three decades and as the Organization of Petroleum Exporting Countries pumps at the fastest pace since 2012.
“Everybody is trying to capture market share,” Ehsan Ul-Haq, an analyst at KBC Energy Economics in London, said by phone. “One of the things the Saudis can do is to provide better freight in order to somehow influence refiners to take more crude from them.”
State-run Saudi Arabian Oil Co.’s press office didn’t respond to an e-mail seeking comment. Mattu J.P. Singh, a New Delhi-based spokeswoman for India’s oil ministry, declined to comment.
Saudi Arabia may sell its supply to India on a delivered basis, meaning shipping costs are included in the price paid by the buyer for the cargo, the people said. The Middle East nation typically sells its crude on a free-on-board basis, where the buyer arranges freight.
The two sides are still discussing the plan, which would need government approval, said the people. Saudi Aramco, as the state oil company is known, sells its crude to Asia at a monthly differential to the average of the Dubai and Oman grades.
“The main obstacle for Saudi Aramco is that it issues its OSPs before others in the region so no matter what discount it gives others can always sell at lower prices,” said Kamel al-Harami, an independent industry analyst and former chief executive officer of Kuwait Petroleum International. “The only way to fix this situation is by giving sweeteners or indirect discounts such as crude delivery to customers.”
Saudi Arabia is leading OPEC’s policy of maintaining output, aimed at keeping market share and forcing other higher-cost producers including U.S. shale companies to slow drilling activity.
Its strategy seems to be working in some Asian nations. South Korea bought a record amount of Saudi crude last month, and the Middle East has held on its rank as the biggest supplier to China, the world’s second-largest oil user.
“India is one of the spaces where the Saudis haven’t made a big push yet,” said Amrita Sen, a London-based analyst with Energy Aspects Ltd. “I think this is one of the ways by which they can make a big push.”