Skip to main content

New Wood Mackenzie report examines Saudi Arabia’s crude dominance

Published by
Hydrocarbon Engineering,

In a recent report titled ‘Saudi Arabia’s crude dominance in Asia – A thing of the past?’ Wood Mackenzie points out that Saudi Arabia is taking steps to protect its market share in Asia, its largest market for crude oil exports. Saudi Arabia is forced to act as other crude suppliers have been making steady inroads in to Asia in the last few years reducing Saudi Arabia’s market share. If Saudi Arabia were to maintain its current crude oil export volume of 227 million t to Asia, by 2020, its market share will reduce from 23% to 21%. More importantly, this would mean a lost market opportunity for Saudi Arabia from Asia’s 135 million t of incremental crude oil import potential by 2020.

Wood Mackenzie says Saudi Arabia is forced to take action by providing price discounts in order to keep prices competitive and retain their market share in Asia. Sushant Gupta, Head of Asia Downstream Research at Wood Mackenzie says, “Asia is the largest market for Saudi Arabia’s crude oil exports. Asia’s share of Saudi crude exports has risen from 60% in 2006 to approximately 65% in 2014. Clearly, it is important for Saudi Arabia to protect its market share in Asia. However, competition has intensified and Asia now has more options to source crude oil supply.”

Addressing who the competitors for Asia’s market share are, Gupta says, “Iraq has emerged as the largest competitor. Our analysis shows it has been most successful in increasing its share of Asian crude supply, with exports rising most by 30 million t from 2010 to 2014. This is followed by Russia, whose supply increased by 21 million t and then the UAE by 20 million t during the same period. Other emerging competitors include Latin America (Colombia and Venezuela) and West Africa. Saudi Arabia only increased its export volumes to Asia by 12 million t in comparison.”

“Furthermore, an increase in US tight oil production has altered the crude trade flows in the last four years. The US has increased its heavy crude imports from Canada backing off crude volumes from Latin America. Similarly, higher use of domestic tight oil resulted in the redirection of West African crude supplies. As such, these suppliers have turned to Asia, providing more options for Asian refiners."

Saudi Arabia has preferentially lowered crude prices for Asia Pacific ever since it announced its intention to compete for market share in Asia. Gupta explains, “The official selling price (OSP) for Arab Light to Asia, which is the premium or discount to average of Oman and Dubai, has traditionally been at a premium until September 2014. With progressive discounts, Arab Light OSP for Asia reached its largest discount of US$2.30/bbl in March 2015, this means Arab Light’s price to Asia is at its lowest level in more than a decade. Without the OSP discount, Arab Light would not be competitive with other crude grades available for Asian refiners such as ESPO blend and Bonny Light, Russian and Nigerian crude respectively, as these crudes provide refiners with higher margins.

“Saudi Arabia had to cut its price in Asia to ensure its crude oil remained attractive to the region’s refiners. Hence, having competitive prices will be an important mechanism that Saudi Arabia would be adopting to secure its market share. Other suppliers looking to position themselves in Asia will have to pay close attention to the Saudi's pricing strategy for Asia. Meanwhile, Asian refiners are set to benefit from this competition.”

Adapted from press release by Rosalie Starling

Read the article online at:


Embed article link: (copy the HTML code below):