The Saudi Oil Price War Is Backfiring
Saudi Arabia has long enjoyed the status of being the top crude oil exporter in the world. With record production of 10.564 million barrels per day in June 2015, Saudi Arabia has been one of the major driving forces behind the current oil price slump.
The Saudis have kept their production levels high since last year in order to drive other players (especially U.S. shale drillers) out of business. Equally clear is the fact that this strategy of maintaining the glut and driving out rivals hasn’t worked so far.
Even when we look at the refining sector, we see that the oil kingdom has been following a similar strategy of flooding the markets with refined fuel. The Saudis have already sparked an oil price war with the Asian refiners downstream by offering close to 2.8 million barrels of low sulfur diesel to the European and Asian markets. This has caused Asian refining margins to fall drastically, the effects of which can ironically now be seen on Saudi Arabia itself.
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Saudis are now reducing their crude oil price hikes in Asia in order to save their market share
As the refining margins have fallen in Asia, refiners there have been compelled to cut their refining outputs. This could eventually result in refiners cutting their crude oil imports.
Asia has been one of the biggest cash cows for Saudi Arabia and there have already been some cuts in some of the most crucial markets. India, which was earlier importing most of its crude oil from Saudi Arabia, is now changing its strategy and buying more crude oil from Nigeria, Iraq, Mexico and Venezuela.
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