Saudi’s Oil-price War Begins as Buyers Snap Up Cheap Crude
The opening battle of the global oil price war got under way in Asia as some of the world’s biggest buyers said they’d try to buy more Saudi crude than planned in April after the exporter offered them unprecedented discounts.
Even as they grapple with a collapse in fuel demand because of the coronavirus, at least six refiners from China to Singapore said they’d nonetheless try to maximize their purchases from the kingdom, storage capacity permitting. State-run Saudi Aramco has started to receive expressions of interest for extra oil, an industry official said separately. The company declined to comment.
The scope to buy more may be limited in April because they’ve largely secured the oil they need for the month, the refiners said, but should the Saudis continue to offer steep discounts into May, they’re ready to take even more at the expense of other suppliers. Asia accounts for roughly two thirds of Saudi oil exports, according to the U.S. Energy Information Administration.
It’s the first sign of how the fight for market share is likely to play out after the collapse of the OPEC+ coalition last week triggered a supply free-for-all. Within hours of talks collapsing in Vienna, the Saudis slashed their official prices by the most in more than 30 years and signaled to buyers it would ramp up output — a declaration of intent to flood the market with crude.
Monday is the deadline for Asian buyers to tell state producer Saudi Aramco how much oil they want next month as part of their long-term supply contracts with the kingdom. In this so-called nomination process, they can typically ask to take up to 10% more or less crude than stipulated by their contracts should market circumstances alter their needs.
For March they requested less oil as the coronavirus weighed on demand, prompting a reduction in refining across Asia and leading to cheaper crude being available in the spot market. With demand remaining subdued and stockpiles filling up, their capacity to take additional Saudi oil will be limited in April unless they increase processing, according to the refiners, who asked not to be identified because they’re not authorized to speak publicly.
“The big cut in Saudi OSPs is definitely a positive factor for refiners,” said Kim Wookyung, a spokeswoman for South Korea’s biggest refiner, SK Innovation. “We’ve been considering additional run rate cuts, but we’re now in deep deliberation on whether to proceed. We’ll assess the overall fuel demand picture first.”
Aramco is in the process of finalizing nominations for April over the next few days, according to the industry official familiar with the company’s plans.
If Asian buyers take up the Saudi offer, it would mean significantly less purchases in the spot market, which could devastate oil markets in which sellers traditionally sell their crude via tenders and spot transactions, including West Africa and some Russian crude streams.
While they were the first movers, the Saudis won’t be alone in offering discounts, with traders expecting similar cuts from other major suppliers like Kuwait, Iran and Iraq in coming days.
Still, refiners are conscious of already-high crude and fuel stockpiles after weeks of virus-hit demand disruptions weighed on margins, leading to shutdowns and run cuts across the region. While lower Saudi prices should theoretically lift margins, processors will still need to assess their ability to find buyers for their refined fuel and plastics products.
“Asian refineries who can stockpile might make use of it,” said Giovanni Staunovo, a commodity analyst with UBS Group AG. “Lower input cost will support margins and allow also other refineries to keep their runs elevated.”
Source: www.worldoil.com
