SAUDI Arabia is locked in a battle for market share in Asia that will force it to keep oil prices down, experts have said.
Wood Mackenzie said Saudi Arabia, the world's biggest producer, will only be able to maintain its share of the giant Asian market if it offers discounts on crude prices.
The implications of the oil and gas consultancy's analysis are sobering for the UK North Sea, where producers are grappling with the effect of the sharp fall in oil prices since June.
The fall accelerated in November after the Saudis decided not to curb production to help support prices.
The decision was seen as reflecting the country's desire to hang on to business in the face of increasing competition from producers in areas such as the US shale fields.
Brent crude fetched $55.60 per barrel yesterday, compared with $115 in June.
Edinburgh-based Wood Mackenzie said the battle for share will be played out in Asia.
Sushant Gupta, head of Asia Downstream Research at Wood Mackenzie, said: "Asia is the largest market for Saudi Arabia's crude oil exports. Asia's share of Saudi crude exports has risen from 60 per cent in 2006 to approximately 65 per cent in 2014. Clearly, it is important for Saudi Arabia to protect its market share in Asia. However, competition has intensified and Asia now has more options to source crude oil supply."
Mr Gupta noted the rise of US shale production has resulted in supplies from West Africa being diverted from America to Asia. Iraq, Russia, the United Arab Emirates and Venezuela have all increased exports to Asia.
He added: "Saudi Arabia had to cut its price in Asia to ensure its crude oil remained attractive to the region's refiners. Hence, having competitive prices will be an important mechanism that Saudi Arabia would be adopting to secure its market share."
The price of Arab light oil has fallen to its lowest level in more than a decade on Asian markets. Mr Gupta said without the $2.30 per barrel discount offered this month, Arab Light oil would not be competitive with other crude grades available for Asian refiners such as ESPO blend from Russia and Nigerian Bonny Light.
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