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Iran crude for Asian Market: Future Perspective

Oct 15, 2014 | Oil and Gas | Amritesh Tiwari

After a long haul of six years, Iran is expected to offer its oil to Asian market at a discounted rate at par with Saudi Arabia. The reason for sharp fall in Iranian crude price is attributed to the reduced price of Arab Light crude for Asia by the world’s largest oil exporter, Saudi Arabia. Further, on global level, Brent crude also witnessed its lowest fall in four years. Sell of crude from Iran to Asian market is expected to start from November. The sale offer has been initiated by the state owned Iranian company National Iranian Oil Co for Asian buyers. This has further intensified the already active oil price war. It is imperative to assess that the Asian market is a competitive landscape for the Middle Eastern oil producers. However, China’s reduced economic growth has lowered the pace of demand growth.

Iranian company, National Iranian Oil Co (NIOC) has announced to sell its best crude to Asian market at a discounted rate of 82 cents per barrel to the average of Oman and Dubai. Earlier; the price of Arab Light for Asian market has been reduced in the range of USD 1 per barrel and USD 1.05 per barrel to the average of Oman and Dubai crudes. Strategically, this price cut-down is ordained with two perspectives: one suggests the initiation of the price war among members of the Organization of Petroleum Exporting Countries, who are expected to thrive and increase their respective market share. The other theory, however, suggests that Saudi Arabia has cut down its oil prices to aid the Asian refiners for enhancing margins. The consequences on global level are also imperative to be taken into consideration, for instance, in West Africa; OPEC members are witnessing lower demand for their crude oil with greater price competition. Whilst Angola sold about 85 percent of the targeted cargoes, Nigeria was not able to meet its targeted sale. Further, OPEC members unanimously opine that as their long term interest is devoid of price war associated strategy, it is unlikely that the price war would be initiated, at least from their end. However, crude prices from Kuwait and Iraq are yet to be released and it’s expected that the reduced pricing from Kuwait and Iraq will have significant effect on the crude price market.