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LONDON (Reuters) - Iran is set to take on rival OPEC producer Saudi Arabia in a competition for European buyers now that Western sanctions have been lifted by offering lower official selling prices for February crude shipments.
Based on official selling prices (OSP) published on National Iranian Oil Company (NIOC) website this month, Iran cut its OSP for light crude to northwest Europe in February to a discount of $4.85 a barrel to the Brent Weighted Average Price (BWAVE) from a discount of $4.30 in January.
The cut on the OSP was made before sanctions banning oil shipments to Europe were lifted.
This matches the $4.85 discount in December, which was the lowest selling price to northwest Europe since early 2009. The discount for heavy crude is now $6.55 a barrel for February, down from $6.00 for January, also a seven-year low.
The discount for Iran's light crude also matches Saudi Arabia's February OSP for sales of its Arab Light blend to northwest Europe.
Nitesh Shah, director and commodity strategist at ETF Securities, warned earlier on Tuesday that Iran will still have difficulty marketing its oil.
"Sales of Iranian oil cannot take place using U.S. dollars. While European companies have more flexibility, their close ties with the U.S. pose challenges," Shah said in a note.
"Had oil prices been higher, Iran's strategy would have been to offer deep discounts on price to sell to countries like India to compensate for the increased complexity of dealing with its oil. But with oil prices so low, there is little potential for discounting."
Iran, a member of OPEC, has said now sanctions have disappeared, it will increase production by 500,000 barrels per day and plans on adding another 500,000 bpd shortly after.
The sanctions halved Iran's oil exports to around 1.1 million bpd from a pre-2012 level of 2.5 million bpd.
A Reuters survey released on Jan. 5 on OPEC crude output showed Iranian production reached 2.9 million bpd in December.
Reporting by Amanda Cooper; Editing by Katharine Houreld