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Earlier, crude prices went into a tailspin on the news of the OPEC+ abolishing oil production restrictions over a lack of consensus regarding the cartel’s suggestion to cut crude output.
Saudi Arabia is hatching plans to increase its oil output in April to over 10 million barrels a day in the wake of the failure of OPEC+ to forge an alliance with Russia on slashing oil output, reports Bloomberg.
The world’s number one oil exporter is believed to have revealed its preparedness to raise production to 12 million barrels a day – a record amount – if need be, the outlet reported, citing sources familiar with the matter.
Bloomberg quoted an anonymous commodities hedge fund manager as saying:
“That’s the oil market equivalent of a declaration of war.”
The outlet cited a hedge fund investor Doug King as adding:
“This is going to get nasty… OPEC+ is going to pump more, and the world is facing a demand shock. $30(per barrel) oil is possible.”
Saudi ‘Price War’
On Saturday Saudi Arabia slashed the official selling price for its crude grades to all destinations as of April, after OPEC’s oil supply cut deal with Russia and other countries fell through.
State oil giant Aramco was offering its flagship light crude oil to Asia at a discount of $3.10 to the Oman/Dubai average, a drop of $6 a barrel from March, according to a copy of the prices reportedly seen by Bloomberg News.
Similarly, the April official selling price of its Arab light crude oil to the US was at a discount of $3.75 per barrel – down $7 a barrel, while the discount for crude to Northwestern Europe stood at $10.25 per barrel to Ice Brent, down $8 a barrel.
“Saudi Arabia is now really going into a full price war,” Iman Nasseri, managing director for the Middle East at oil consultant FGE was cited by the publication as saying.
Collapsed OPEC+ Talks
The shock discounts and reports of a Saudi production hike come after negotiations between OPEC+ members on Friday suggesting the need to further decrease oil production amid the outbreak of the coronavirus, officially known as COVID-19, fell through.
Russian Energy minister Alexander Novak rejected an ultimatum on 6 March in Vienna at the OPEC+ meeting to join in a collective production cut. After the collapsed talks, Novak said countries were free to pump-at-will from the end of March.
The Russian Energy minister added:
“This is why, I believe, we are coming to a moment when, starting 1 April, we will work without considering the previously active quotas and cuts. However, this certainly does not mean that every country will not analyse the situation developing in the market,” the minister added.
Novak confirmed that the OPEC+ will continue working as outlined in the long-term cooperation charter.
Russia’s oil output increase will now hinge on companies’ plans, but no negotiations have been held between the companies and the Energy Ministry so far, added the minister.
“This will, most importantly, depend on companies’ plans. We will need to discuss this with companies, as we have not discussed such an option,” Novak said, when asked about Russia’s possible oil output increase.
Oil prices accelerated their fall to 8.5 percent on the news, with Brent crude falling below $46 per barrel for the first time since June 2017.
