Shortly after we spoke yesterday about the banking liquidity crisis in Saudi Arabia caused by the "Saudi circ ref" (low oil prices -> budget deficits -> more oil pumping -> even lower oil prices), almost on cue, the state-owned Saudi Aramco, the worlds largest oil exporter, announced the largest price cut for Arab light sweet crude sold into Asian markets in 10 months. Aramco priced September exports to Asia $1.10 per barrel below regional benchmarks which is a $1.30 cut vs. August pricing. Oil pricing into Asian markets has come under intense pressure in 2016 as the battle for market share has intensified between the Saudis, Russians and Iranians (a topic we've covered extensively here, here and here).
Saudi prices cuts, which we fully anticipate to be matched by the Iranians, come as Iran continues to flood the market with supply in a race to return production to pre-sanction levels of 4 mm barrels per day. Since international sanctions against Iran were eased in January, 1H16 shipments to Asia have surged with Japan’s purchases up 28%, India up 63%, South Korea up over 100% and China up 2.5%. Mohsen Ghamsari, director of international affairs at state-run National Iranian Oil Co., said:
"Iran is exporting about 2 million barrels of its daily output of 3.8 million. It has regained about 80 percent of the market share it held before the U.S. and European Union tightened sanctions on its oil industry in 2012."
Iran has already boosted crude production 25% this year and aims to reach an eight-year high for daily output of 4 million barrels by the end of the year.