The previous market share war between the world’s largest producers, such as Saudi Arabia, Russia, and the Middle East, broke out between 2014 and 2016 when they tried to clamp down on shale oil production from the United States by cutting prices and providing more supplies to Asia.
That battle ended when the Organization of the Petroleum Exporting Countries and Russia struck a deal to cut production.
That truce collapsed on Friday when OPEC, led by Saudi Arabia, failed to reach an agreement with Russia, the world’s second largest oil producer, to deepen production cuts in order to raise prices.
The price of Brent global benchmark crude fell more than nine percent on Friday to $ 45.27 a barrel, the largest single-day loss in 11 years.
Late on Saturday evening, the kingdom lowered the official selling price for April shipments of all its raw materials to various destinations. Saudi Arabia plans to increase production in the same month to more than ten million barrels per day for the first time since May 2019.
The cuts to Asia, which is a major growth market, went between four and six dollars a barrel, which is probably the largest drop in prices ever and three times the expectations that were to reduce by two dollars a barrel for light Arab crude.
“It looks like a comprehensive Saudi shock and a strategy of intimidation aimed at increasing Saudi quantities and competing with Russian oil in their backyard in Europe and Asia,” said Tilak Doshi, of the Middle East Institute at the National University of Singapore.
“This could be worse than the second half of 2014, and prices may test $ 30 or even $ 20 in light of the shock of demand coinciding with the impact of the Corona virus on economic activity,” added Duchi, who previously worked for Saudi Aramco.
A trader at North Asia’s refining company said “crazy” price cuts could lead Brent to $ 40 a barrel soon.
Asian dealers and analysts said the decline in crude costs would likely support the margins of Asian refiners, which were hit by lower demand from the outbreak of the Coronavirus.
“It is good news for refining companies and consumers,” one of the sources said.
Asian buyers can choose between options for arbitrage windows for oil from Europe, Africa and the Americas, after Brent crude price premiums over Dubai fell sharply and tanker rental rates fell to their peaks in January.
“It is unclear how American shale oil producers will react due to the sheer volume of options that sell and because big producers like Exxon Mobil have paralyzed their pockets deep and therefore do not have to respond immediately by reducing production,” Duchy said.
Traders also said that spot prices are expected to drop more than forward prices, which will encourage oil storage.
The last time this situation happened – the spot price retreated from the forward – in 2014 and 2015, at which time millions of barrels of oil were stored on ships and tankers across Asia, Europe, and Africa.
Co-coverage by Xu Chang from Singapore and Rania Al Jamal from Dubai – Prepared by Mohamed Faraj for the Arabic Bulletin – Edited by Ahmed Elhamy