OIL PRICES: SAUDI CATS
Saudi Arabia, the world's largest oil exporter, deepened the discount at which it sells crude to Asia and the U.S., underscoring for some market watchers the kingdom's commitment to defending its market share amid the recent rout in oil prices.
The move comes a week after Riyadh persuaded fellow OPEC members to maintain the group's production target, instead of reining in output significantly to support prices.
Brent crude, the global benchmark, slid 0.4% to $69.64 a barrel on the news, reversing earlier gains. That's the lowest level since May 2010 and brings Brent's year-to-date decline to 37%. U.S. crude-oil prices dropped 0.8% to $66.81 a barrel, but remained above the more-than five-year low hit Nov. 28.
State-owned Saudi Aramco Oil Co., also known as Saudi Aramco, said Thursday that it had reduced its official selling prices for all oil grades bound for Asia in January by between $1.50 and $1.90 a barrel, compared with December. It dropped prices for all crude grades to the U.S. by between 10 cents and 90 cents a barrel.
Thursday's discounts to Asia "would herald in a new round in the battle for market shares," said Carsten Fritsch, an analyst at Commerzbank . He said the U.S. discounts were "tantamount to a declaration of war to U.S. shale oil producers," given the steep fall already in U.S. benchmark prices.
Aramco, however, raised prices for all crude grades to Northwest Europe and Mediterranean destinations by between 20 cents and 50 cents a barrel compared with the December prices.
Saudi Aramco sets its prices relative to regional benchmark crude-oil prices. It sells at different prices in different regions mainly to reconcile buyer demand with market fluctuations in those benchmarks. The price-setting process is typically a technical move with little impact on the broader market. But in recent months, amid a steep drop in global crude prices, the settings have been closely followed by market watchers looking for signs about Saudi oil policy.
Saudi Arabia, the biggest producer by far in the Organization of the Petroleum Exporting Countries, and its Gulf allies pushed the group at its Nov. 27 meeting to keep its production target unchanged. People familiar with the matter said Riyadh argued that the group would lose market share to non-OPEC producers, including U.S. shale-oil producers, if it cut output. Aramco also cut its U.S. pricing last month, a move executives familiar with the matter said at the time was aimed at holding on to market share.
The Wall Street Journal reported Wednesday that the kingdom now believes oil prices could stabilize at around $60 a barrel, a level both it and other Gulf producers believe they could withstand. The shift in Saudi thinking suggests the country won't push for supply cuts in the near term, even if oil prices fall further.
Kuwait's deputy finance minister, Khalifa Hamada, said at a local news conference on Thursday that the country was likely to base its 2014-2015 budget on an oil price of $55 to $60 a barrel.
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IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.