Saudi Arabia's oil price war: oil prices plunge 30%! Will it fall below $20 a barrel?



【Summary】Last week, after Russia refused to support the "Organization of Petroleum Exporting Countries" (OPEC)'s proposal to cut production, Saudi Arabia took the initiative to start a price war, and oil prices suffered a historic plunge.

(From China Chemical News Public Number)
Last week, after Russia refused to support the "Organization of Petroleum Exporting Countries" (OPEC)'s proposal to cut production, Saudi Arabia took the initiative to start a price war, and oil prices suffered a historic plunge.
Saudi Arabia starts oil price war
Last Friday, OPEC and Russia talks broke down and could not reach an agreement to further reduce production by 1.5 million barrels per day. On Saturday, Saudi Arabia immediately launched a "full-scale oil price war":
Sharp cuts in the pricing of its main crude oil at different levels, the largest cut in at least 20 years. This is the first marketing decision announced by Saudi Aramco, a Saudi state-owned oil company, after the OPEC meeting.
The declaration file shows:
The price of crude oil sold to Asia was lowered by 4-6 US dollars per barrel in April;
In April, the price of crude oil sold to the United States was lowered by $7/barrel;
These are unprecedented discounts.
But the most striking thing is that the discount on flagship Arabian light crude sold to refiners in northwest Europe has expanded to $8/bbl, and the price is as low as $10.25/bbl. In contrast, Russia's flagship Urals crude oil (Urals) is trading at a discount of about $2 a barrel.
Obviously, Saudi Arabia is to directly attack the European market of Russian oil companies.
Brent crude oil futures fell $14.25, or 31.5 per cent, to $31.02 a barrel, Reuters reported on the 9th. It was the biggest drop since the start of the Gulf War on January 17, 1991, and the lowest price since February 12, 2016.
West Texas Intermediate (WTI) fell $11.28, or 27.4 per cent, to $30 a barrel, the biggest percentage drop since the Gulf War and the lowest price since February 22, 2016.
As of 14:28 on March 9, WTI crude oil's decline narrowed to 27%, at $30/barrel, after falling 33%. Brent crude oil is now at $33.67/barrel.
On March 9, the domestic market day market closed generally green. Fuel oil, asphalt, crude oil, PTA, methanol and other energy varieties fell.
Russia refuses to back proposed cuts
Since the global spread of the new crown epidemic, the market is concerned about weak demand for crude oil, international oil prices have fallen continuously. As the largest oil producer in OPEC, Saudi Arabia has been urging OPEC and its allies, led by Russia, to cut production to support oil prices.
To this end, Saudi Arabia issued a statement last Thursday (5th) stating that it will propose to non-OPEC oil-producing countries, including Russia, to expand the existing 2.1 million-barrel/day production reduction agreement by another 1.5 million barrels/day. However, Russia rejected the proposal and ended in failure at the negotiations on OPEC and its allies to expand production cuts held in Vienna on the 6th.
On the 7th, Saudi Arabia launched an "oil price war" and lowered the April crude oil sales price by 6 to 8 US dollars. At the same time, Saudi Arabia also said that if necessary, can continue to increase production.
Saudi Arabia is the world's largest oil exporter, producing about 9.7 million barrels a day, but its output can reach 12 million barrels a day. CNN quoted analysts as saying that the purpose of Saudi Arabia's price reduction is to regain market share and put more pressure on Russia.
International oil prices may fall to $20 a barrel
Goldman Sachs analysts warned that oil prices could fall further, to $20 a barrel.
Goldman Sachs analysts said in the report that the price of Brent crude oil may fall as low as $20 per barrel, which will test some oil producers.
Goldman Sachs said the price war has completely changed the outlook for the oil and gas market. Goldman Sachs lowered its oil price forecast for the second and third quarters to $30 per barrel.
"We think OPEC's oil price war with Russia certainly began this weekend," Goldman Sachs analysts said. "The prognosis for the oil market is even worse than it was in November 2014, when the last price war was launched, as the coronavirus outbreak caused a significant drop in oil demand."
Brent crude has fallen about 1/3 this year, heading for its lowest level since 2017 at $45 a barrel.
As the outbreak dampened business activity and led to a halt in travel, the global economy was in trouble, putting countries dependent on oil revenues and many oil companies under heavy pressure.
Two sources told Reuters on Sunday that Saudi Arabia, the world's largest oil exporter, plans to significantly increase oil production to more than 10 million barrels per day in April.
Sources familiar with the matter said Saudi Aramco will increase production after OPEC's production cuts with Russia expire at the end of March.
Production in April will be well above 10 million bpd and probably close to 11 million bpd, the sources said. In the past few months, Saudi production has remained at 9.7 million bpd.
Aramco should maximize production and increase crude sales to protect its market share, the sources said.
Saudi Arabia has a capacity of 12 million bpd, giving it the ability to rapidly increase production.
Other OPEC producers, such as Iraq, Kuwait and the United Arab Emirates, are likely to follow Saudi Arabia's lead by slashing oil prices in April.
"You have to follow the official selling price (OSP) or you will die in the market," said an industry source in OPEC's oil-producing country.
At the same time, a sharp drop in oil prices will hurt oil producers around the world, especially Venezuela and Iran, two oil-based economies already under pressure from U.S. sanctions.
The New York Times said that if oil prices continue to plummet, debt-laden US oil companies will also face greater financial pressure.
Dozens of U.S. oil companies have gone bankrupt in recent years, and U.S. oil production is likely to decline with it. Oil companies have been cutting jobs in Texas and other oil-producing states. (From China Chemical News Public Number)

Related Content