Suppliers from the Organization of Petroleum Exporting Countries (OPEC) are increasingly undercutting each other as individual members fight for a larger market share amidst oil price slow down.
OPEC members fight for market share in the Asia-Pacific region
In the past, all OPEC members would work together to either increase or decrease oil prices, but more are opting to go at it alone. In particular, Kuwait and Iraq are selling their oil cheaper than Saudi Arabia, the group’s largest member.
The unity among members of the oil cartel is all but fading even as the group battles competition from non-OPEC oil from US, Brazil and Russia.
As demand for oil increases in Asia, members of OPEC are ditching traditional allegiances to increase their market share in the region.
Virendra Chauhan, a consultant at the Singapore-based Energy Aspects Ltd said “It’s a full on battle for market share among OPEC members.”
For the next couple of years, starting in 2015, the Asia-Pacific region will account for up to 34 percent of oil demand globally. The International Energy Agency reports that demand from China alone will account for more than a quarter of the world’s oil consumption.
Kuwait is selling its Export Blend Crude to Asia at 65 cent cheaper that the Arab Medium crude oil from Saudi Arabia which is of the same quality as the from Kuwait. The selling price is about 40cents more the price difference between the two countries in 2014.
According to Bob Fryklund, chief upstream strategist at the IHS Inc, the OPEC countries are competing amongst themselves and with suppliers who are not part of the group.
“This is why there are significant oil price discounts from OPEC when compared to prices for other crude oils,” Mr. Frykland added.
Increased production, more potential price wars
Starting August, oil prices have been at their lowest with OPEC increasing its oil supplies to weaken competing producers who incur high-costs production.
Although OPEC predicts that demand for its oil is set to improve next year, increased production by Iran may see prices remain as low as they currently are.
Iran is the fifth largest producer in OPEC and may increase supply to 3.6 million barrels daily in six months if international sanctions against the country are dropped.
An increase in oil production will only see more competition and further undercutting among OPEC members, a trend that may have implications for future oil prices.