Saudi Discount Signals OPEC's Growing Fragmentation

Saudi Arabia's deep discount on its flagship Arab Light crude for Asian buyers signals deeper divisions within OPEC and Riyadh's anxiety about losing market share.

The price, $2 a barrel below the Oman/Dubai benchmark for September, is the widest discount since June 2020. This unusual move comes as several OPEC members are seeking to increase their production, including Iraq, which aims to reach 8-10 million barrels a day within six years.

The departure of the UAE from both OPEC and OPEC+ has weakened the organization's claim to manage the market. OPEC accounted for about 35% of global crude output with the UAE and roughly 31% without it, according to Wael Mahdi, an independent commentator specializing in OPEC and Saudi Arabia's economy.

The fiscal asymmetry between Gulf countries is a major factor in these developments. The UAE can balance its budget at a much lower oil price than Saudi Arabia, making the latter more vulnerable to an oil slump and more invested in defending prices and preserving OPEC's relevance.