Adedapo Adesanya
By Adedapo Adesanya
Following the collapse of talks concerning cutting daily oil production last week by the Organisation of the Petroleum Exporting Countries alliance (OPEC+), Saudi Arabia has kick-started a price war by slashing the prices it sells crude into foreign markets.
The Kingdom, which is the world’s largest oil exporter, over the weekend started offering discounts on its crude grade prices to destinations in Europe, the Far East and the United States to entice refiners to purchase Saudi crude at the expense of other suppliers.
Saudi Arabia cut official selling price (OSP) of the commodity by $6 to $8 a barrel across all these regions which is seen as a direct attack at the ability of Russian companies to sell crude in Europe.
The state oil giant, Saudi Aramco, set its Arab light crude oil to Asia for April at a discount of $3.10 to the Oman/Dubai average, down $6 a barrel from March.
It cut the April OSP of its Arab light crude oil to the United States to a discount of $3.75 per barrel compared to Argus Sour Crude Index (ASCI), down $7 per barrel from March.
Aramco lowered its OSP for Arab light crude oil to Northwestern Europe to a discount of $10.25 per barrel to Ice Brent, down $8 per barrel.
This is a major worry for other suppliers which include Nigeria, with the Kingdom also planning to increase its production as high as 12 million barrels per day.
Current production is at 9.7 million per day as instituted by the OPEC alliance last December, but due to a fall out with another member of the alliance, Russia, over its failure to agree to further cuts, the producer is playing a game that will plunge an already over-supplied market into an oil glut as other producers will likely flood the market.
After the talks collapsed, the Russian Energy Minister, Mr Alexander Novak, said countries were free to pump without restrictions from the end of March and this led Brent crude, the global oil benchmark, to its biggest daily drop since the global financial crisis in 2008 at $45.27 per barrel.
Analysts believe that this could be an attempt to get Russia and other producers to negotiate because prices will continue to fall as a result of this, except if they make a deal and reverse the decision.
With the coronavirus affecting demand this year, Brent crude has dropped by over 20 percent. Last week, prices further fell more than 9 percent in one day after Russia walked out of the OPEC deal.
