Saudi Arabia reduces its supplies to Asia and Europe to support oil prices

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The Kingdom of Saudi Arabia reduced crude oil supplies to at least 11 refineries in Asia and Europe, after the Kingdom volunteered to reduce its production by one million barrels per day for the months of February and March, in order to support oil prices in conjunction with the decline in oil demand.

Aramco will provide less oil as part of long-term contracts next month, giving some Asian processing centers between 20% and 30% less than what they demanded of crude, according to statements by company officials to Bloomberg.

The European refiner, which usually buys small quantities from Saudi Arabia, will receive no shipments for February. Officials said supply cuts were focused on heavy items such as medium and heavy grades.

State-owned Aramco declined to comment when contacted about the matter. Saudi Arabia’s move to sell less oil comes amid an overall decline in demand for crude across Asia due to the peak refinery maintenance season from March to April.

Separately, the emergence of COVID-19 infections across Asia and Europe, and the declaration of a state of emergency in parts of Japan and Malaysia, have reduced fuel consumption and kept refinery operating rates at low levels. Officials said five other Asian processors ordered less crude for the month of February and received the quantities they requested.

Aramco raised its official selling prices for all sales to Asia and the United States last week, after announcing the surprise of implementing large discounts during the month.

Across Asia, refiners have been anxiously waiting for Aramco to issue the so-called allocations for February due to expectations of tight supplies. Despite lower demand for crude oil due to maintenance operations across Asia and thin margins, regional processors hit by supply cuts may seek immediate shipments to make up for the shortfall. Other alternatives include short-range Russian barrels such as “Espoo” and “Sokol” for March loading, which can reach North Asia in less than a week.

Most of the “OPEC +” countries will keep production at its level unchanged, in light of the new closure and isolation measures to confront the Corona pandemic.

Global crude prices recorded their highest levels since February, after Saudi Arabia’s decision to cut further production, according to “Reuters”.

Last year, the state energy giant reduced crude shipments between June and August to Asian buyers with fixed-term contracts in compliance with the “OPEC +” agreement.

Refinitiv Icon data revealed that Saudi Arabia exported about seven million barrels per day of crude, about 70% of which were to Asia last year.

Trade sources told “Reuters” that although the additional reduction in Saudi oil supplies may contribute to supporting the spot market this month, Asian crude consumption is expected to decrease in light of seasonal maintenance of refineries.

Refiners, including HBCL-Metal Energy of India, Taiwan’s Formosa Petrochemical, and Thai “IRBC” and “Bangchak”, are heading towards maintenance work in the first quarter. . Japanese “Idemitsu Kosan” closed a crude distillation unit with a capacity of 150 thousand barrels per day following a fire accident.





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