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Saudi Arabia has promised a flood of cheap oil to Europe as it aims to hit its former ally Russia in its own backyard, but it looks like demand for the ultra-cheap Saudi crude doesn’t exist after all.
Despite the flood of cheap oil Saudi Arabia has promised, some refiners in Europe, including supermajor Shell, are set to take less crude from the Kingdom in April amid plummeting demand in the coronavirus pandemic, Reuters reported on Thursday, quoting industry sources.
Saudi Arabia, the world’s biggest oil exporter and OPEC’s top producer, has pledged to flood the market with oil in April after Russia refused to back deeper cuts proposed by the Saudi-led OPEC in response to the demand slump. The Kingdom is intent on unleashing growing crude oil volumes on the global market, aiming to significantly boost its crude oil exports to a record-breaking more than 10 million bpd in May.
In Europe, Saudi Arabia appears to be going after Russia’s oil market share with deeply discounted Arab Light crude at up to three times the usual volumes. Saudi Arabia hasn’t seen Europe as a core market in recent years because it has prioritized continuously growing demand in Asian markets. But in the war of market share, the Kingdom is now looking to squeeze Russian oil out of Europe by offering deep discounts which make its Arab Light crude priced at as low as $25 a barrel at Rotterdam, much lower than the price of Urals.
Regardless of the cheap extra Saudi crude oil, refiners in Europe plan to cut allocations for Saudi oil by as much as 25 percent for April, Reuters sources said, as many major economies – including Germany, France, Spain, Italy, and the UK – are in lockdown mode to try to slow the spread of the coronavirus. The widespread lockdowns are leading to a massive slump in oil demand in Europe’s biggest economies. Refining operations in Europe and elsewhere are scaling back as gasoline and jet fuel demand falls off a cliff due to the pandemic.
It’s difficult to “nominate a lot” amid refinery processing cuts, a trade source told Reuters.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
The claim that Saudi Arabia aims to significantly boost its exports to a record-breaking 10 million barrels a day (mbd) in May is a farce and I will explain why.
Current Saudi oil exports amount to 7.0 mbd. To raise them to 10.0 mbd and also accommodate a domestic consumption of 3.72 mbd entails a total production of 13.72 mbd. Saudi Arabia doesn’t have the production capacity to produce 13.72 million barrels a day (mbd). It has never ever had such a production capacity in its entire history of oil production and will never ever have one. Its production peaked at 9.65 mbd in 2005 and has been in decline since. Saudi Arabia can at best produce some 8.0-9.0 mbd with another 700,000 barrels a day (b/d) to 1.0 mbd coming from storage. This is so because its current production is coming from five giant but aging and fast-depleting oilfields discovered more than 70 years ago.
Saudi Arabia has been hoodwinking the world for years about the size of its proven oil reserves and it is now doing exactly the same by threatening to flood the global oil market by a production capacity it doesn’t have.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London