Saudi Aramco may again start a price war with Russia in the oil market. This opinion was expressed during the webinar by Alexander Gryaznov, Director of corporate ratings at S&P Global Ratings in Russia.
“There is a pause in this war. Both players-in fact, both Saudi Arabia and Russia – are not profitable in this situation to continue this price war. But when the price returns to 50-55 dollars per barrel, I would not rule out that the fight for the markets will continue,” he said.
According to S&P Global Ratings, the price of Brent crude oil will be at the level of $ 30 per barrel by the end of 2020, with a subsequent recovery to $ 50 in 2021. In 2022 and beyond, experts expect prices to reach $ 55 per barrel.
Why did Saudi Aramco start a price war?
Recall that in March and April, Saudi Aramco made huge discounts on its oil supplied to Europe and Asia. Thus, the Saudi state-owned company put Russia in an awkward position.
“Saudi Arabia’s price reduction was aimed directly at gaining Russian market share. Especially in some European countries – “the Wall Street Journal said,” however, as traders note, Russia managed to redirect European supplies to China. There, demand is recovering.”
In light of declining demand in Europe and the United States, Saudi Arabia had difficulty finding new oil buyers in these markets. Buyers are faced with the problem of lack of storage; because of this, it is more difficult for them to purchase additional volumes, the publication notes.
Then, on April 12, the OPEC + Alliance agreed to reduce oil production by 9.7 million barrels per day in May-June, 7.7 million in the second half of the year, and 5.8 million barrels further until the end of April 2022. The reference point was in October 2018. But for Russia and Saudi Arabia, 11 million barrels per day were taken, from which, by analogy with all of them, there is a decrease of 23%, 18%, and 14%, respectively.
At the same time, Saudi Arabia said that in June, in addition to its obligations under the OPEC+ deal, it will reduce production by 1 million barrels per day to 7.492 million barrels per day. However, after the quarantine is lifted and demand is restored, Saudi Aramco may try to re-capture large shares of the global oil market.