Panos Mourdoukoutas: Saudi Arabia
oil prices, will Iran follow?
The current continued policy of Saudi Arabia and OPEC is to keep production
up to preserve market share, but Iran oil into the market could cause dramatic change in policies.
It was only a few months ago that Saudi Arabia and Iran were racing to cut deals with Asian customers, undercutting each other, driving prices lower, towards the $20s.
Now, Saudi Arabia is raising prices for Arab Light crude in Asia for the second month in a row, the first back-to-back increase since May 2015, to the highest level since September 2014, according to Saudi Gazette.
Saudi Arabia's price hike comes at a time when unforeseen events, like wildfires in Canada and disruptions in Nigeria, have reduced the global oil glut; and a few days after OPEC members failed to reach an agreement to an oil output freeze.
Will Iran follow Saudi Arabia's lead? It doesn't seem so.
In a recent interview reported in Tehran Times , Iran's oil minister Bijan Zanganeh stated that Asia was a primary market, but that Iran “should look more in Europe and Africa,” suggesting that it won't match Saudi Kingdom's price hike.Iran has yet to reach its pre-sanction market share. Besides, it needs the oil revenues to upgrade its refinery capacity. This means that Iran will continue to pump oil, even if it has to cut prices.
Saudi Arabia's crude oil is similar to that of Iran's, and for several months, the long time enemies have been caught in an epic battle to undercut each other's economy, which has been taking oil prices on a roller coaster, as previously discussed here.
In a battle for market share, Iran has been struggling as they are just beginning to build up market share around the world. Much of the global fight for market share is occurring in four key markets that make up 36% of global oil demand: the European Union (EU), China, Japan, and India. Sanctions imposed on Iran's oil exports led to that country not being able to compete with its direct competitors within OPEC.
This gave Saudi Arabia the opportunity to ramp up production and grow market share in the four key markets. - Omar Mawji/Geopolitical Monitor
Panos Mourdoukoutas is a Professor and Chair of the Department of Economics at LIU Post-Long Island University in New York, is a FORBES contributor and writes for professional journals and magazines, including Barron's, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance. Petroleumworld does not necessarily share these views.
This commentary was originally published by FORBES, on June 7, 2016. Petroleumworld reprint this article in the interest of our readers.
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