Flames produced by gas in the desert, near the Khurais oil field, located about 160 kilometers from Riyadh, Saudi Arabia. Photo: Ali Jarekji / Reuters.
–
The Saudi oil giant, Aramco, reduced the value of several brands of crude oil in order to increase its exports. This risky step threatens to provoke a price war, and not only affected the regional stock exchanges in the Middle East: it has also damaged the company itself.
Aramco lowered the official price of oil for its consumers only two days after OPEC member countries failed to reach an agreement with Russia to reduce crude oil extraction.
The company reduced the cost per barrel of Arab Light and Medium brands by $ 6 for its consumers in Asia. This reduction resulted in discounts of $ 3.10 and $ 4.05 respectively of the Middle East reference price. In fact, the cut applied to the Arab Light exceeded the expectations of traders and refiners seeking to obtain a discount of $ 1.90, according to the price sheet published by the company and quoted by Bloomberg.
Aramco also lowered crude oil prices between $ 6 and $ 8 per barrel for consumers in northwestern Europe and the Mediterranean region. The reduction of 8 dollars per barrel is a direct challenge for Russia, a country that sells a large amount of Urals oil – its flagship brand – to northwestern Europe. This is the biggest cut in official Aramco crude prices in the last 20 years.
To make matters worse, Riad prepares more surprises for the future, as it could sell its Arab Light brand to Europe with an unprecedented discount of $ 10.25 per barrel, compared to Brent.
What are the goals set by Riyadh?
Riyadh’s move with pricing is the first clue of how the Arab country plans to respond to the discrepancies that have arisen in the alliance between OPEC and its partners, such as Russia. The kingdom seeks to accompany these discounts with an increase in the supply of crude oil, sources close to the situation stressed to the US agency. It is the first marketing decision that has been taken since the negotiations held by the cartel in Vienna concluded without agreement.
Black gold production in Saudi Arabia is expected to exceed 10 million barrels per day in April, which will mean an increase of more than 3% compared to February volume. The most optimistic forecasts suggest that the Saudis will be able to extract about 12.5 million barrels per day.
“Saudi Arabia is now really entering full price war,” said Iman Nasseri, managing director for the Middle East of the consulting firm FGE.
There is no doubt that oil producers have budget holes to fill and that they will begin to increase production when they are free of the restrictions imposed by the cartel. Aramco’s price drop points out what Saudi Arabia is looking to do, writes Bloomberg.
Other oil producers in the Persian Gulf may follow Riyadh and lower their prices. It is a fairly common practice in that region, and the change usually varies between a few cents and a couple of dollars per barrel compared to the reference prices for the Middle East.
The shot in his own leg.
The reaction of the bags to Aramco’s strategy was swift.
Taking such a risky step could not go unnoticed by the Saudi company. And more taking into account the current situation of the oil market, where prices have been falling in recent months, among other things, due to the spread of the coronavirus outbreak.
As a result, Aramco lost 4.85% of its value after the price per share fell to around $ 8.4 on March 8 and continued to plummet for the rest of the day.
The fall of the Saudi giant dragged with it the main stock indexes of the region. Dubai, Abu Dhabi and Kuwait exchanges plummeted between 5.3% and 6.4% half an hour after they opened on March 8.
The banks suffered the greatest losses. The NBD of the United Arab Emirates, the largest lender in Dubai, was left 9.6%, while the shares of the First Bank of Abu Dhabi and those of the National Bank of Kuwait collapsed 8.5% and 8, 2% respectively.
(Taken from Sputnik)
– .
