Saudi Arabia emerged victorious from the oil war with Russia and seriously pushed its main competitor in the European market. First, the country forced Russia to reduce production by 2.8 million barrels per day under the OPEC+ agreement. Second, it won the price war by offering record discounts to buyers, and third, it entered the capital of the EU’s largest energy companies and secured purchases. Russian exports fell by 41% in April, and Russian oil companies are losing more than $ 6 per barrel sold.
Tactics and strategy of Riyadh
Saudi Arabia declared a price war on Russia on March 6, when the Russian delegation refused to reduce production by 300 thousand barrels per day. Riyadh increased output to 12.3 million barrels per day and offered a discount for Europe for 10.25 dollars from the cost of Brent. In the next step, Saudi Arabia took advantage of the fall in the value of energy companies and invested $ 1 billion in buying shares of key players in the EU industry. After the forced agreement with Russia to limit production by 2.8 million barrels per day, Riyadh did not refuse discounts and began issuing oil in installments for three months (90 days).
The result was not long in coming: the largest refineries owned by Shell, Total, OMV, Repsol, and Cepsa switched to buying cheap Saudi oil instead of Russian. The transition was facilitated by the fact that Arab Light and Urals have similar quality and can be used at refineries without particularly complex technical reconfiguration. This allowed Riyadh to increase deliveries to Europe to 1.42 million tons in April, which is twice the level of March, according to the Argus Agency.
For comparison, Russian supplies fell by 41% to 935 thousand tons. For example, Poland purchased 377 thousand tons of Urals in March and 66.5 thousand tons in April. Saudi Arabia delivered 500 thousand tons to Poland, which is 102 tons, more than the March deliveries. Representatives of European oil companies say that Saudi Arabia “processes” buyers with discounts and special offers. Therefore, Russia has no chance.
Now the discount on the Arab Extra Light variety for southern Europe is 10.3 dollars from the Brent price and for northwestern Europe-10.25 dollars. The total share of Saudi Arabia in April was 29 million barrels – a record since 2016. Even Belarus switched to raw materials from Saudi Arabia. The first batch purchased from Riyadh for 80 thousand tons will arrive on May 11 in the port of Klaipeda. At the same time, Minsk is a traditional buyer of Russian oil.
Russia is sitting in the red.
According to Nikita Blokhin, senior analyst at Alfa-Bank, in the current situation, Saudi Arabia adheres to the principle of “volumes bypassing margins” to capture market share in Europe and Asia. But Russia is losing out in this competition: the Russian authorities charge oil companies export duties at the prices of February – early March, namely – $ 52 per ton, writes Reuters.
However, in the port of Novorossiysk, a barrel of Urals costs 16.83 dollars. This leads to the fact that Russian oil companies lose about 6.51 dollars per barrel. Companies will not become profitable in may when the duty is reduced to $ 6.8 per ton. Companies will go to zero and lose their share in critical markets.