Saudi Arabia has dramatically escalated global oil market competition by cutting July crude prices for Asian buyers to their lowest level since 2021. The move comes as OPEC+ members continue increasing production despite growing inventories.
The Pricing Offensive
State-owned Saudi Aramco set its July Arab Light crude official selling price for Asia at $1.20 per barrel above the Oman/Dubai average, down from June’s $1.40 premium. This aggressive pricing strategy coincides with OPEC+’s decision to maintain production increases of 411,000 barrels per day through July.
Since April, participating OPEC+ nations have collectively added 1.37 million barrels daily – representing 62% of their planned 2.2 million barrel production increase.
Behind the Production Push
While OPEC+ cites “stable global economic prospects and healthy market fundamentals” for its output expansion, inventory data tells a different story. OECD crude stocks surged by 13.5 million barrels last week, with Kayrros reporting a 170 million barrel global inventory build over 100 days.
Industry analysts identify three strategic objectives behind Saudi Arabia’s moves:
- Enforcing discipline among quota-violating OPEC+ members (Russia, Kazakhstan, Iraq, UAE)
- Challenging US shale producers facing $65+/barrel breakeven costs
- Aligning production with seasonal demand increases
The Compliance Challenge
Russia and Kazakhstan have consistently exceeded production quotas, with April data showing:
- Kazakhstan accounted for 28.24% of OPEC+ overproduction
- UAE represented 24.31%
- Iraq contributed 22.92%
“This isn’t a short, sharp price war but rather a prolonged, measured campaign,” noted Francisco Blanch of Bank of America. Morgan Stanley analysts predict OPEC+ may continue increasing output for three more months, potentially eliminating all 2023 production cuts by October.
Historical Precedents and Risks
The current strategy echoes Saudi Arabia’s 2014 price war that crashed oil from $107 to $27/barrel, devastating US shale producers but also damaging OPEC economies. The kingdom faces renewed fiscal pressures, with:
- Q1 2025 government deficit soaring to $15.6 billion
- Aramco’s net profit declining 4.6% year-over-year
- Dividend payments plummeting from $10+ billion to $200 million
With oil still accounting for over 60% of Saudi revenue, the price war threatens Vision 2030 diversification plans even as it seeks to reclaim market share and discipline OPEC+ members.
Related topics:
