Kuwait refines oil pricing in battle for European customers

Gulf OPEC member Kuwait has changed the way it prices oil for Europe, trading sources said, in a rare tactical move aimed at making its crude more competitive as the battle for customers between OPEC and non-OPEC rivals intensifies.

The European market, long dominated by Russian oil supplies, has been neglected by major OPEC producers due to poor growth as they focused on expanding Asian markets.

But as Russia moved aggressively into Asian markets and with the growing global oil glut heating up the fight for customers, OPEC members such as Saudi Arabia and Iraq ramped up sales to Europe, taking on former Russian customers such as Poland and Sweden.

Large sales from Iraq’s Kurdistan into Europe have added to the competition over the past six months and now Kuwait - a usually little-noticed seller in Europe - is both increasing sales and making its crude more attractive.

“If we want to have a share in any market, we have to have competitive marketing. That’s what we are doing ... we have a legitimate market share that we try to protect and develop,” a senior trading source familiar with the development said.

Trading sources said that from late last year the state-run Kuwait Petroleum Corporation (KPC) began pricing its European exports against the dated Brent benchmark after years of following OPEC’s heavyweight Saudi Arabia in pricing its oil against the Brent Weighted Average (BWAVE).

BWAVE is also used by Iran while Iraq is using dated Brent. Over the past year, because of the way they are calculated, barrels priced off dated Brent have on average been cheaper than those priced against BWAVE.

“All you have to do is just to look at who the customers like from the point of view of pricing. It is pretty obvious that over the past year, they gravitated towards Iraqi and very cheap Kurdish oil,” a second trading source said.

While changing its pricing policy, KPC also started trading more barrels on a spot basis in Europe, following the sale of its Rotterdam refinery to trading house Gunvor.

Last month, a senior KPC official said Kuwait planned to boost output this year and sign new export deals with European customers despite “fierce competition”.

The company is now estimated to be selling around 500,000 barrels per day in Europe on a term and spot basis, trading sources say, covering some 5 percent of the continent’s demand.

The move comes as Iran, OPEC’s third-largest oil producer, is also preparing to sell more crude to Europe after the lifting of international sanctions in January.

Iran said this week it could consider a pricing improvement for its crude sales to Europe by selling some spot cargoes at the dated Brent benchmark, though it was sticking with BWAVE for its term contracts.