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Russia refuses to open negotiations with Saudi Arabia, which is flooding world markets with cheap oil in a brazen attempt to punish Russia for rejecting substantial oil production cuts that would have steadied sinking oil prices.
Saudi Arabia has made huge cuts to its official selling prices for oil. Arab Light and Arab Medium barrels are being sold at $25 to 28 per barrel on CIF Rotterdam basis, said traders. Downward pressure on prices is also coming from the massive selloff that roiled Wall Street and world equity markets Thursday.
Brent crude, the global benchmark, plunged 7% Thursday to $33.30 a barrel after President Donald Trump announced travel restrictions on 26 European countries. U.S. crude oil plunged another 6% to $31 a barrel. It earlier dropped to as low as $30.02 per barrel.
Prices recovered somewhat Friday following a stunning Wall Street rally that saw all three major indices spike by more than 9%. Oil prices rose 5% after the United States announced the Department of Energy will purchase crude for the nation’s strategic petroleum reserve (SPR).
Saudi Arabia’s oil production surge plus its huge discounts intend to wrest market share from Russia’s oil industry. As of 2018 and before the substantial production cuts in late 2019, the world’s top three oil producers were the United States with 17.9 million barrels per day (18% market share), Saudi Arabia with 12 million bpd (12%) and Russia, 11.40 million bpd (11%).
Oil industry analysts affirm Saudi Arabia is unleashing cheap oil onto world markets with prices as low as $25 per barrel to crumble Russia’s market share. This major escalation in the price war is specifically aimed at big refiners of Russian oil in Europe and Asia.
Saudi Arabia has guaranteed state-owned Saudi Arabian Oil Company (Saudi Aramco) will supply all requested additional volumes in April. Saudi Aramco is the world’s largest oil-producing company, and produced an average of 10.3 million bpd of oil in 2018.
Industry sources said Saudi Arabia also wants to replace Russian oil with Chinese and Indian buyers, according to Reuters. An offshoot of Saudi Arabia’s oil offensive is a huge spike in oil tanker rates. Saudi Arabia provisionally chartered 31 supertankers to transport extra oil, including to the United States, where Russian oil is less in demand.
Despite being on the receiving end of Saudi Arabia’s price war, Russia said it’s not planning to come back to the negotiating table — for now. On Friday, Minister of Energy Alexander Novak said Russia sees no grounds so far for returning to discussions with Saudi Arabia and its OPEC+ partners. He also said Russia can increase its oil production by 200,000 bpd in April.
Russia’s production spike pales besides that of Saudi Arabia, which has vowed to raise output by 2.6 million bpd in April, including from stocks. Saudi Arabian allies like the United Arab Emirates has allied itself with Saudi Arabia in the ongoing battle for market share against Russia and has also announced production increases.
