Saudi Aramco, Saudi Arabia's state oil company, is raising prices for its Asian customers but lowering them for Europe, a move that may muddy any understanding of the kingdom's oil strategy.
Saudi Arabia, OPEC's most productive member, led the cartel to maintain its output of 30 million barrels a day at its meeting on Nov. 27, but waited weeks to explain why: By driving down the price of oil, it was moving to recover market share from non-OPEC oil producers with "inefficient," or high-cost methods of extracting oil, including the United States, Canada and Russia.
So it came as no surprise that on Dec. 4, 2014, it slashed oil prices for Asian and US customers. Saudi Aramco lowered the price of all its oil grades for Asian customers in January 2015 by between $1.50 and $1.90 per barrel below prices in December 2014.
Now Riyadh's message is less clear. On Jan. 6 it reduced the official selling price of its light crude oil for northwestern Europe by $1.50 per barrel for February delivery, the lowest it's been since 2009 and $4.65 lower than European Brent crude.
At the same time, however, Saudi Aramco said it would sell the same grade of oil to customers in Asia at less of a discount than it had previously – therefore raising the price for its largest market, which buys more than 50 percent of exported Saudi oil. Instead of a $2 discount, Asian customers will have a discount of only $1.40. To any accountant, that's a price increase.
It made sense when Saudi Oil Minister Ali al-Naimi told the Middle East Economic Survey in mid-December that low prices were his strategy to restore OPEC's market share. After all, the United States once was OPEC's largest customer.
In recent years, though, Americans have become nearly almost self-sufficient in oil due to shale oil. But extracting shale requires expensive hydraulic fracturing, which isn't profitable if the average global price of oil falls much below $60 per barrel.
So what does Aramco's conflicting pricing say about the Saudi-OPEC strategy? Analysts' interpretations of the move are just as conflicting.
"They're putting the brakes on a little bit," Leo Drollas, a London-based independent consultant and former chief economist at the Centre for Global Energy Studies, told Bloomberg News. "It's a little message that maybe prices are going down too far too quickly, and this is a little signal that they're looking at things."
There's a different take from Gene McGillian, a senior analyst at Tradition Energy in Stamford, Conn. He says many traders view the latest Saudi pricing moves as evidence that Saudi Aramco is dropping any effort to keep oil prices from falling further and instead to keep its eye solely on market share.
"The moves are reinforcing that the Saudis just don't intend to do anything to rebalance [price] levels," McGillian told Reuters.
Tariq Zahir, a commodity fund manager at Tyche Capital Advisors in New York agreed. "There is a fight for market share going on," he told Bloomberg News. And the reason, he said, is simple: "We are not seeing any kind of production decrease."
By Andy Tully of Oilprice.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.