Saudi Arabia is feeling the impact of the US oil boom, leading to a reduction in oil prices to Asia in order to stimulate demand. State-owned Saudi Aramco has lowered the price of its flagship Arab Light crude headed to Asia by 50 cents to $3.50 a barrel in January, according to Bloomberg. This is the first time Saudi Arabia has made such a cut since June.
The decision to cut prices reflects the weakening demand faced by the world’s top oil exporter, as other players like the US increase oil supply. Sweet or low-sulfur crude prices have been falling in recent weeks, partly due to robust US exports. US crude oil production reached a record 13.2 million barrels a day in September, as reported by the Energy Information Administration.
In addition to the US, non-OPEC+ production in countries like Brazil has been ramping up, while Saudi Arabia and Russia have been reducing supply. This influx of oil from outside the cartel has weighed down crude prices and increased competition against Saudi crude. On Wednesday, Brent crude fell below $75 a barrel, a more than 20% drop from its September high.
Despite these challenges, Saudi officials remain committed to output cuts. Riyadh’s energy minister stated that the cuts could continue beyond the first quarter of next year. OPEC+ announced plans to reduce supply by over 2 million barrels a day in the coming year. Energy expert Paul Sankey believes that Saudi Arabia will launch a market share war against the US by increasing production next year.