Saudi oil price cuts seen reigniting market share war with Russia

Asian oil traders are bracing for another round of hefty price falls on Monday in key benchmarks Brent and Dubai after the world’s top exporter Saudi Arabia slashed prices, reigniting a market share battle among key producers.

The world’s top producers including Saudi Arabia , Russia , and other Middle East producers were last locked in a market share war between 2014 and 2016 as they tried to squeeze out shale production from the United States by reducing prices and offering more supplies to Asia .

The battle ended when the Organization of the Petroleum Exporting Countries ( OPEC ) and Russia struck a deal to cut production .

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That truce shook on Friday when OPEC , led by Saudi Arabia , failed to reach an agreement with the world’s No. 2 oil producer Russia to deepen production cuts aimed at shoring up prices.

Global price marker Brent dived more than 9% on Friday to USD$45.27 a barrel, its biggest single-day loss in 11 years.

Late on Saturday, Saudi Arabia slashed its official selling price ( OSP ) for April for all its crude grades to all destinations . The producer also planned to raise in April its production to more than 10 million barrels per day ( bpd ) for the first time since May 2019.

Price cuts for key growth market Asia were as deep as USD$4-USD$6 a barrel, likely the biggest price reduction ever , and three times more than expectations of USD$2 a barrel cut for flagship Arab Light grade .

The slump in crude costs will likely support Asian refiners’ margins which have been battered by a demand slump from the coronavirus outbreak , traders and analysts in Asia said.

Asian buyers are currently spoilt for choice as the arbitrage windows for oil from Europe , Africa , and the Americas have opened after Brent’s premium to Dubai narrowed sharply and tanker freight rates slumped from January highs.

Prompt prices are also expected to fall more than those in future months, widening a market structure known as contango that will encourage traders to store oil , traders said.

The last major oil contango play , as the trading strategy is known, was in 2014-2015 where millions of barrels of oil were stored onboard ships and in tanks across Asia , Europe , and Africa .

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