Oil prices plumbed new depths yesterday as Saudi Arabia changed its export strategy, resulting in Brent crude prices falling 2.8 per cent to their lowest since November 2010.
From Monday’s close of US$84.78, Brent fell to $82.36 per barrel in trading yesterday afternoon as Saudi Arabia decreased the relative price of its exports to the US, a move that was speculated to gain market share.
The Saudis alter the relative price of their oil by changing the differentials or, as the case may be, the premiums for various customers.
At the same time as it was giving US buyers a bigger break, the state oil firm Saudi Aramco shifted gears as it announced that it would increase relative prices on its exports to Europe and Asia from the discounted rate the previous month.
The Arab Light Crude December export premium to Asia and Europe will increase to $1.05, from $0.10 in November. This move signals Saudi Arabia’s attempt to stifle US shale producers, which are anticipated to drive the market in 2015.
The International Energy Agency (IEA) has said that the US will become the world's top oil producer, edging out Russia and Saudi Arabia, as a result of its shale plays.
The US will be close to achieving energy independence by 2035, changing markets drastically as the world’s second-largest oil importer becomes an exporter.
Despite the recent development in Saudi pricing strategies, the UAE plans to stick to its market strategy of ramping up crude oil production capacity to 3.5 million barrels per day from 2.72 million bpd.
Ahmad Mohamed Al Kaabi, the UAE Ministry of Energy’s Director of the Petroleum Economics Department, said that Saudi Arabia’s decision did not affect the UAE’s strategy.
“The markets will decide the prices, not the suppliers,” Mr Al Kaabi said.
He added: “The main objective is to satisfy local requirement; whatever goes beyond that will go for export.”
On the markets yesterday, DME Oman continued to decline as prices declined by $1.88 to $81.49 a barrel. Mid-October had heralded the first time since June 2012 that futures traded below $90 a barrel.
WTI crude prices had hovered around $90 a barrel in September, but numbers began a steady decline the next month with WTI dropping to the lowest levels recorded in two years yesterday to $80.54.
Ali Khalifa Al Shamsi, Adnoc strategy and coordination director, said that the country would continue to focus on unconventionals like shale oil and gas. He said: “The priority is to supply energy and gas that will meet demand.”
Opec is scheduled to meet on November 27 to discuss output targets for the upcoming year as well as the drop in prices.
Ahead of the meeting in Vienna, oil discussions will begin in Abu Dhabi as the Abu Dhabi International Petroleum Exhibition and Conference (Adipec) begins on Monday. With 16 national oil companies and 17 international oil companies, the UAE’s short and long-term strategies will be an important topic for attendees. The event will involve companies holding discussions and creating new partnerships, as well as innovative market technology being released.
lgraves@thenational.ae
Follow The National's Business section on Twitter