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. Last Updated: 07/27/2016

Saudis Eye Asian Price War With Russia

APAl-Naimi, center, talking with other delegates at last week's OPEC meeting in Vienna.
SINGAPORE -- Saudi Arabian Oil Minister Ali al- Naimi, who oversees the world's biggest oil reserves, may offer to cut prices to buyers in China, South Korea and Japan in the face of growing competition from Russia, traders said Friday.

Al-Naimi, who travels to Seoul and Tokyo from Beijing this week, may discount prices for Asian buyers, traders said.

Russian plans to build more than $20 billion of oil and gas pipelines supplying China, South Korea and Japan may help Asian refiners cut oil bills that are as much as $10 billion a year more than they would pay in Europe or the U.S.

"They may look into giving price concessions," said Dennis Ang, president of Statoil Asia Pacific, a unit of Norway's biggest oil producer. "The Russian pipeline offers a challenge and they have to accept diversification of sources. They at least want to maintain market share or even grow it."

Russia is vying with Saudi Arabia, the largest oil producer, to supply to China and Japan, the world's No.2 and No.3 consumers. Russian output grew 12 percent in the first two months of this year to 8.9 million barrels a day against the Saudis' 8.4 million. Saudi Arabia can produce as much as 10 million barrels a day, with more than 40 percent of output going to Asian buyers.

China, South Korea and Japan, which import four-fifths of their oil from the Middle East, want to diversify sources of oil.

Al-Naimi "will try to persuade Japan to continue buying Saudi's oil," said Hiro Katsumata, a post-doctoral fellow at the Institute of Defense and Strategic Studies in Singapore. "Over the last decade, Japan has diversified its source of energy -- in relative terms. One thing is that it has become relatively easier for any country to purchase oil in the international market."

Russia and other non-OPEC producers such as Kazakhstan have been taking market share from members of the oil group as it cuts output. Kazakhstan's oil production has risen 10 percent to 965,000 barrels a day.

Japan is competing with China, Asia's fastest-growing economy, to secure oil and gas supplies from Russia. Both are vying for supply from Russia's far eastern fields. PetroChina, China's largest oil producer, and Yukos proposed a $2.8 billion pipeline to transport Siberian oil to Daqing in northeast China.

Japan has offered to help pay the $5.8 billion cost of an alternative line to Russia's Pacific coast port of Nakhodka so that the oil can be exported to Japan.

Russia has yet to decide which plan to support.

"Saudi Arabia is feeling threatened by the Russian oil pipeline project," said Jang Ji Hak, a crude oil trader at Hyundai Oilbank, South Korea's fourth-biggest refiner. "South Korean companies will be better positioned to negotiate prices and in efforts to settle the issue of Asian premiums."

Hyundai Oilbank said in December it would stop buying crude oil from Saudi Arabia from this year, increasing supplies from Iran. Hyundai Oilbank dropped a contract with Saudi Aramco, the world's biggest oil company, for 20,000 barrels per day and increase purchases from National Iranian Oil Co.

Saudi Aramco's crude oil prices are determined by destination, with prices for its Asian customers expressed as a differential against the average of Oman and Dubai grades, the two Arabian Gulf benchmarks used by Asian oil traders.

China, which last year overtook Japan as an oil consumer, may boost crude imports by more than 9.8 percent this year to ease domestic fuel shortages, the government said on March 24.