‘Crazy’ Saudi oil price cuts that rekindle the market share war with Russia are seen
The world’s leading producers, including Saudi Arabia, Russia and other producers in the Middle East, were last involved in a market share war between 2014 and 2016, as they tried to squeeze the shale production of the United States through the price reduction and offering more supplies to Asia.
The battle ended when the Organization of Petroleum Exporting Countries (OPEC) and Russia reached an agreement to reduce production.
That truce was shaken on Friday when OPEC, led by Saudi Arabia, failed to reach an agreement with the world’s number 2 oil producer, Russia, to deepen production cuts aimed at propping up prices.
The Brent global price marker fell more than 9% on Friday to $ 45.27 per barrel, its biggest loss in a single day in 11 years.
Late on Saturday, Saudi Arabia reduced its official sales price (OSP) for all its crude oil qualities to all destinations in April. The producer also planned to increase its production in April to more than 10 million barrels per day (bpd) for the first time since May 2019.
The price cuts for the key Asian growth market were as deep as $ 4- $ 6 per barrel, probably the biggest price reduction in history, and three times more than the expectations of a $ 2 per barrel cut for The flagship degree of Arab Light.
“It seems like a total Saudi shock and amazement strategy to raise Saudi volumes and compete with Russian oil in its own backyard in Europe and Asia,” said Tilak Doshi, principal investigator for the Middle East Institute, National University. Singapore.
“This could be even worse than the second half of 2014 and prices could prove $ 30 or even $ 20 given the simultaneous shock of demand with the impact of the coronavirus on economic activity,” said Doshi, who previously worked for Saudi Aramco .
A merchant with a refinery in North Asia said “crazy” price cuts could lead Brent to try $ 40 a barrel soon.
The fall in oil costs will probably support the margins of Asian refineries that have been hit by a fall in demand for the coronavirus outbreak, traders and analysts in Asia said.
“It’s good news for refiners and consumers,” said one of the sources.
Asian buyers have many options to choose from, as the arbitration windows for oil in Europe, Africa and America have opened after Brent’s premium to Dubai was drastically reduced and tank rates dropped from highs. from January.
“It is not clear how receptive the shale producers in the United States will be, given that a significant volume is blocked in the options for selling prices and large producers such as ExxonMobil and Chevron have deep pockets in their own balance sheets and, therefore, so, they won’t have to respond immediately with production cuts, “Doshi said.
Fast prices are also expected to fall more than in the coming months, expanding a market structure known as contango that will encourage traders to store oil, traders said.
The last important move of oil contango, as the commercial strategy is known, was in 2014-2015, where millions of barrels of oil were stored aboard ships and tanks in Asia, Europe and Africa.