With the commodity world still smarting from the Nov 2014 Saudi
decision to (temporarily) break apart OPEC, and flood the market with
oil in (failed) hopes of crushing US shale producers (who survived
thanks to generous banks extending loan terms and even more generous
buyers of junk bonds), which nonetheless resulted in a painful
manufacturing recession as the price of Brent cratered as low as the
mid-$20's in late 2015/early 2016, on Saturday, Saudi Arabia
launched its second scorched earth, or rather scorched oil campaign in 6
years. And this time there will be blood.
Following Friday's shocking collapse of OPEC+, when Russia and Riyadh
were unable to reach an agreement during the OPEC+ summit in Vienna
which was seeking up to 1.5 million b/d in further oil production cuts,
on Saturday Saudi Arabia kick started what Bloomberg called an all-out oil war, slashing
official pricing for its crude and making the deepest cuts in at least
20 years on its main grades, in an effort to push as many barrels into
the market as possible.
In the first major marketing decision since the meeting, the Saudi
state producer Aramco, which successfully IPOed just before the price of
oil cratered...
... launched unprecedented discounts and
cut its April pricing for crude sales to Asia by $4-$6 a barrel and to
the U.S. by a whopping $7 a barrel in attempts to steal market share
from 3rd party sources, according to a copy of the announcement seen by
Bloomberg. In the most significant move, Aramco widened the
discount for its flagship Arab Light crude to refiners in north-west
Europe by a hefty $8 a barrel, offering it at $10.25 a barrel under the
Brent benchmark. In contrast, Urals, the Russian flagship crude blend, trades at a discount of about $2 a barrel under Brent. Traders said the Saudi move was a direct attack at the ability of Russian companies to sell crude in Europe.
Confirming the obvious, Iman Nasseri, managing director for the Middle East at oil consultant FGE said "Saudi Arabia is now really going into a full price war."
The draconian cuts in monthly pricing by state prouder Saudi
Aramco are the first and clearest indication of how the Saudis will
respond to the break up of the alliance between OPEC and Russia, which
as we noted earlier, dumped MbS on Friday in
a stunning reversal within OPEC+. Talks in Vienna ended in
dramatic failure on Friday as Saudi Arabia’s gamble to get Russia to
agree to a prolonged and deeper cut failed to pay off.
And the second indication that the OPEC oil cartel is now effectively
dead, came a few hours later when Bloomberg again reported that in
addition to huge price cuts, Saudi Arabia was set to flood the market with a glut of oil to steal market share and capitalize on its just announced massive price cuts as the kingdom plans to increase oil output next month, going well above 10 million barrels a day.
In addition to slashing prices, Saudi Arabia has privately
told some market participants it could raise production much higher if
needed, even going to a record of 12 million barrels a day, according to Bloomberg sources....MORE
