Oil price sees worst week since 2008 financial crisis
Saudi Arabia is preparing to flood markets with oil at prices as low as $25 per barrel, specifically targeting big refiners of Russian oil in Europe and Asia, as its price war with Moscow heats up, sources told Reuters news agency on Friday. This comes as oil closes on its worst week since the 2008 financial crisis amid a coronavirus outbreak that continues to threaten demand and crude producers promising more supply.
The sources speaking to Reuters, from oil majors and refiners that process crude in Europe, said Saudi state oil company Aramco told them it would supply all requested additional volumes in April.
Oil prices have halved since the start of the year. Last Friday, tensions between the world’s top oil producers, Saudi Arabia and Russia, flared into an all-out price war after Russia and OPEC failed to reach a new deal on supply cuts. Riyadh retaliated by opening its taps and pledging to pump record volumes of oil into the market.
Sources previously told Reuters that Saudi Arabia is also seeking to replace Russian oil customers with Chinese and Indian buyers, although not all refiners received volumes for which they had asked. Tanker rates soared as Saudi Arabia provisionally chartered around 31 supertankers to take extra oil, including to the United States, where Russian oil is usually less in demand.
Russia has so far said it is not planning to come back to the negotiating table despite feeling the pressure from the extraordinary Saudi moves. Russian Energy Minister Alexander Novak said on Friday that his country saw no grounds so far for returning to discussions with its OPEC+ partners, and can increase its oil production by a modest 200,000 barrels per day (bpd) in April.
By contrast, Saudi Arabia has pledged to raise output by 2.6m bpd in April. Fellow Gulf producers such as the United Arab Emirates have joined in the battle for market share and announced production increases. Saudi Arabia has made a deep cut to its official selling prices for oil. Arab Light and Arab Medium barrels were offered at selling prices of $25 to 28 per barrel on a CIF Rotterdam basis, traders said.
Russia’s main blend, Urals, has been offered slightly higher than $30 per barrel on a CIF Rotterdam basis, according to Refinitiv Eikon data.
“We are happy with our allocation. The requests for April were confirmed. I look forward to May if prices remain that attractive”, a trader with a European oil company involved in the talks told Reuters.
European oil refiners including Total, BP, Eni and SOCAR have all had allocations for additional Saudi crude oil supplies in April confirmed, the sources said.
Goldman Sachs said it now expected a record high oil surplus of 6 bpd by April, in a global market that usually consumes about 100 million bpd.
“The avenues for a quick off-ramp to the Saudi-Russia price war appear to be closing,” RBC Capital Markets analyst Helima Croft said.