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US shale challenges Middle East oil in Asian markets
August 19, 2017, 2:14 pm
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In June, Saudi Arabia decided to raise the price of its crude oil following increased global demand after OPEC and non-OPEC countries decided to extend their production cuts in May. Saudi Aramco, the state-owned oil behemoth, raised the July price for its Arab Light grade for Asian customers by $0.60 a barrel compared to previous month.

The official selling price of Saudi crude sets the trend for other Middle East oil suppliers and affects more than 12 million barrels per day (bpd) of crude bound for Asia, the biggest market for oil from the Gulf states.

The decision by Saudi Arabia to increase its prices has, perhaps unwittingly, given a wide opening to Russia, and other hydrocarbon producing countries in Africa and Latin America, to compete with Middle East oil to supply Asia’s oil demand. A new entrant aiming to quench the seemingly insatiable Asian demand for oil is the United States with its shale oil supplies.

India, the world’s third largest oil consumer after the United States and China, recently announced that it was in talks with the US about shale shipments. This followed a meeting between Indian Prime Minister Narendra Modi and US President Donald Trump in the White House on 27 June. In response to Trump’s offer of reviving American energy exports, the Indian premier is believed to have said that India would consider it if the price was right.

As it turns out, the price is more than just right. Indian Oil Corporation (IOC), the state-owned oil entity, announced last month that it had purchased an initial shipment of 2 million barrels of oil from US shale suppliers and that it was looking to step up imports from America as part of its crude diversification strategy.

In August, IOC said that it had bought a further 1.9 million barrels of US crude and that it had received government approval to buy one cargo of US oil every month till March 2018. The company added that it was expecting to receive the initial oil shipments at its Paradip refinery in Odisha, on India’s east coast, sometime in September. Other oil companies in India, including Bharat Petroleum and Hindustan Petroleum, have also placed, or are in the process of placing, orders, with US shale oil producers. Meanwhile, state-run gas utility GAIL has contracted for nearly 6 million tonne of shale gas from US shale gas producers for shipment in January.

India joins the band of other Asian countries, such as South Korea, Japan and China that have begun to buy US oil and gas. Indian officials say that even after factoring in the longer shipping distance, US oil is working out to be cheaper than Middle East oil. India now wants to leverage its status as a major energy buyer to get a better deal by undercutting OPEC’s sway on energy prices, but also more importantly, to make a political point to its suppliers.

 

 

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