The world’s largest proven crude oil producer, Saudi Aramco, plunged crude oil prices for its customer in Asia in the next month. Though, the prices for Europe and the U.S. remains steady.
The drop-down in price by the colossal producer of crude oil, Saudi Arabia, in the Asian market for the upcoming month is anticipated to be a strategy to lure the buyers into buying more of its barrels.
The unforeseen deduction took everyone by surprise as the prices slashed twice the expected amount.
The current status and expert remarks
Saudi Aramco trimmed down the official selling price of Arab Light crude for the first time in four months for Asia in the upcoming October month.
According to a company pricing document, the prices slashed to a premium of $1.70 per barrel versus the average of DME Oman and Platts Dubai crudes.
Saudi Aramco is cutting its direct Arab Light crude pricing by $1.30 a barrel to a premium of $1.70 more than the regional benchmark.
According to a survey among six traders and refiners in Asia, Aramco likely decreased the oil selling price by 60 cents a barrel.
This decrease took buyers by surprise, and they are assuming the reduction in costs is a hint to the competitive strategy of Saudis to capture maximum market share from rivals.
Oil traders in Asia conclude that the steep price cuts will probably boost the demand for Saudi crude. “This is what Saudi wants,” one of the traders stated.
However, the traders and analysts are also predicting a slim possibility that Saudi Arabia may end up in another price war with its rivals.
Virendra Chauhan, Energy Aspects analyst, articulated that if Saudi continues to be in this route, they might reverse a lot of the inventory normalization achieved over the past 12- 18 months, as demand is tentative.
Giovanni Staunovo, a commodities analyst at USB Group AG, said, “Because of the high Saudi’s official selling price in previous months, traders have diverted to the spot market instead of using long term contracts”.
Hence, Aramco is determined to redirect its buyers to take maximum Saudi crude, Giovanni asserted.
Covid-19 restrictions in Asia hit the crude oil demands.
The outbreak of novel delta variants in the Asia-Pacific region has massively impacted the demand for crude oil.
An increase in prices for three consecutive months in the company’s official selling price had left the refiners distressed as the coronavirus takes a massive toll.
Zhuwei Wang, lead analyst-Middle East oil markets at S&P Global Platts Analytics, stated that the Asia-Pacific region expected to foresee the weak fundamentals from the demand side as significant countries such as China, Indonesia, Malaysia, and others are reimposing the restrictions in the country.
Steady prices in the U.S. and Northwest Europe
Aramco is determined to keep the pricing steady in the U.S. and Northwest Europe for October.
Nevertheless, the buyers in the Mediterranean region have been cut some slack off around 10 cents a barrel on all grades.
In contrast, Saudi Aramco is not fore-sighting to boost its sale in the U.S. as the country is believed to draw on strategic reserves as production in the U.S. Gulf Coast struggled to recover.
According to the released government data, around 1.7 million barrels of oil and 1.99 billion cubic feet of natural gas produced remained offline.
Multiple accompanying havoc such as power shortages and hurricanes are preventing some refineries from resuming operations.
Majorly, the storm led U.S. energy firms to cut down the number of oil and natural gas rigs operating first time after five weeks, data from Baker Hughes indicated. The oil rig count alone fell the most since June 2020.
OPEC Plus to escalate the global oil production
OPEC Plus, a group of 23 countries, including Russia led by Saudi Arabia, reached a deal in July to accelerate the global oil production by 400,000 barrels a day, from August to December.
This upsurge production is expected to add 2 per cent of the world’s supply by the end of the year.
The UAE and Saudi Arabia recently resolved a dispute that blocked an agreement leading to a surge in oil prices, hitting six-year highs in July.
Accordingly, the world awaits the outcomes of price reduction in crude oil. Will this create a lucrative opportunity for Saudi or an invitation to the price war all over again.
