Do price differentials even work? What’s to prevent US buyers from shipping to Asia and pocketing the difference?
Spending $2.5 a barrel to ship to gain a $1 price gain.
Depends on a few things, including freight differential and what type of crude the refineries are set up to handle. If I remember correctly, Saudi is heavy. Of corse, other factors do come into play.
They do, when you have a bumbling fool for president who won't allow exporting of oil./s
In reality, though, that doesn't even work. In a global economy, a price differential simply won't hold for long. The US will simply stop buying from Saudi Arabia, and buy elsewhere.
What most of these articles leave out is the actual numbers.
Saudi Aramco prices oil as a discount or adder to the oil trade price on the Middle East Commodities Exchange.
After lower Asia’a price to more than a dollar discount, they raised it 95¢ to a slight discount.
The US price the lowered by 45¢.
Read that again, the market panic is over 45¢ a barrel.
Over reaction in my opinion. Your mileage may vary.
Months of Cuts
http://online.wsj.com/articles/saudi-arabia-raises-oil-prices-to-asia-after-months-of-cuts-1415040189
Competition Forcing Saudis to Keep Prices Low in the U.S.
Nov. 3, 2014 1:43 p.m. ET
In my opinion, this half a buck move isn’t going to drive the US production changes. It is about competing with the countries like Iraq, Kuwait, Brazil, Columbia that export to the US.
I was thinking the same thing... this wont work.
KRAMER: No, it doesn't work.
NEWMAN: What d'you mean it doesn't work? You get enough oil together...
KRAMER: Yeah, you overload your inventory and you blow your margins on tanker costs. Trust me, it doesn't work. Now, maybe if you had a mostly-empty postal truck going to China on Mother's Day....
Only if there is a profit.......................
It works temporarily. The cost of transportation is what makes the differential work.