Kuwait, Saudi Arabia's traditional Gulf ally, is challenging its bigger neighbour in an increasingly competitive battle for market share as it sells oil to buyers in Asia at the widest discount to a comparable Saudi grade in 10 years.
Kuwait's price cut to Asia, and cuts by other Middle East producers including Saudi Arabia and Iraq, have underscored competition for oil sales to the region as a rout in global benchmarks threatens the national budgets of some Organization of the Petroleum Exporting Countries (Opec) members.
Defending and winning share in Asia's still growing markets has become the primary focus, too, as demand has softened in the United States with rising shale oil output and in Europe with weak economic growth in the eurozone.
"You have the reality of an increasingly crowded market for mid-sour barrels in Asia," said Daniel Sternoff, senior managing director at consultancy Medley Global Advisors.
"I wouldn't say price war, but there are clear signs of more competitive pricing."
Kuwaiti crude in October is already 50 cents a barrel cheaper than Saudi Arabia's official selling price (OSP) for its Arab Medium grade, the widest discount since at least 2004, Reuters data showed.
Iraq, the second largest producer of Opec, has also priced its Basra Light crude at the widest discount against Arab Medium in a year, after Asian buyers had steered clear of its flagship grade on fears an Islamist insurgency would disrupt supplies.
Kuwait, Iraq and Iran typically adjust their crude prices using the Saudi OSPs as a guide, but with the world's biggest exporter cutting its prices for a fourth month in a row on October 1, they may struggle to respond to protect market share.
Last week, Saudi Arabia sharply cut its official oil prices for Asian customers in November, in the clearest sign yet that it is competing harder for crude market share.
By the end of this week, Kuwait and Iraq are likely to cut their November prices by at least 70 cents from October, keeping pace with the drop in Arab Medium. That would be their lowest since January 2009, according to Reuters data, although some Asian buyers are calling for a bigger price cut for Kuwaiti oil.
"Kuwaiti crude is always expensive so it should be lower a bit more. Arab Medium minus 60-70 cents is a good price, I think," a trader with a North Asian refiner said.
Iran has set the November OSP for Iranian Light at 82 cents a barrel belowOman/Dubai quotes, the lowest since December 2008.
COMPETITION FROM AFRICA, AMERICAS
Kuwait's discount to Arab Medium has doubled from last year after it lost market share to abundant and cheaper supply from Iraq, and as Iran's exports rose after Western sanctions eased, traders said.
Asia's top four crude buyers, China, India, Japan and South Korea, imported just over 1.1 million barrels per day (bpd) of Kuwaiti oil in the first eight months this year, down from close to 1.4 million bpd last year, customs and Reuters data showed.
To boost sales, Kuwait concluded in August a new 10-year deal with China's Sinopec Corp to nearly double its supplies by offering to ship oil and sell it on a more competitive cost-and-freight basis.
It also locked in 2015 oil sales to Philippine refiner Petron in a separate deal.
A well-supplied global market has tipped the balance in favour of Asian buyers, who are switching to cheaper oil from Africa and the Americas as they reduce their reliance on Middle Eastern crudes.
The world will require less oil from Opec next year, the US Energy Information Administration said on Tuesday, as it trimmed its forecast of world oil demand growth and made even deeper cuts in its outlook for Opec production.
That makes the fight over Asia's intake of medium crude, with API gravity between 28 and 38 degrees, particularly critical. Between 2013 and 2020 Asia will increase its purchase of these grades by more than two million bpd, according to oil consultancy Wood Mackenzie.
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