Saudis to Challenge Russia in European Oil Market

Saudis to Challenge Russia in European Oil MarketSaudis to Challenge Russia in European Oil Market

Saudi Arabia is ramping up its oil war, with a new discount for crude in the European market. The move targets Iran, but may also affect Russia.

An output freeze is not on the agenda anymore and key players will likely increase production.

Saudi Arabia is selling short again. The national petroleum company Saudi Aramco announced a discount of $0.35 a barrel on July oil futures for northwestern Europe and a discount of $0.1 a barrel for the Mediterranean region, Sputnik News reported.

Currently, Saudi Arabia delivers to Europe nearly 800,000 barrels of crude a day while Iran sells 400,000 barrels. However, Tehran expects to increase shipments to 700,000 barrels.

As for the US, Saudi Arabia will increase the price, by $0.1 a barrel.

"Saudi Arabia wants to take as much as it can from each regional market," Sergei Agibalov, an analyst at the Energy and Finance Institute, told

"Demand for cheaper overseas crude is now growing in the US. It is less expensive because it is of worth quality than US-produced shale oil. And Saudi Arabia is increasing prices for the US," he said.

On the contrary, in Europe, Saudi Arabia competes with Iran and Russia. Recently, Russia began to increase crude shipments to Europe. As a result, Riyadh has had to offer discounts for its oil.

Despite the fact that Saudi crude is considered sweet crude (containing low levels of sulfur) in fact it is rather close to Russian-made Urals crude that is considered sour crude (with higher levels of sulfur), Rusenergy partner, Mikhail Krutikhin, said.

"First of all, local dumping will hit European oil companies in Britain and Norway," Alexander Pasechnik, senior analyst at the National Fund for Energy Security, said. In the short-term perspective, it will not have a significant impact.

"Iran may offer a bigger discount. It has a margin of safety. Previously, Iran gave a discount of $1 a barrel," Pasechnik said.

However, Iran may offer even a bigger discount. In March, it was reported that Tehran sold some of its sour oil to Europe for $17 a barrel, while the market price was nearly $39-40 a barrel. If Iran repeats the move, it would further fuel competition in the market.