Saudi Arabia cuts barrel prices unilaterally
Saudi Arabia has started to unilaterally cut prices this week for some of its customers, including those in Asia. In addition to the fall in demand caused by the persistence of the coronavirus health crisis and the commercial tensions between the United States and China, the crude oil market will have to face this new price cut. "This is the second consecutive month of oil barrel reductions in the region and the first month of six in which US refineries will see a cut. Saudi Aramco will also cut the prices of the barrels it sells to north-western Europe and the Mediterranean region," according to the Bloomberg agency.
Oil producers are facing September with great uncertainty. Demand is starting to weaken and oil prices are starting to fall due to events in the Middle East and Asia. The advance of the pandemic in the United States may mean that demand does not recover throughout the year. The fall in oil prices has also been driven by the cuts in crude oil prices announced to Saudi Arabia. "This movement of the kingdom the desert has been interpreted by the markets as a sign that demand is weakening again. Furthermore, China has reduced its crude oil imports in August because they cannot store any more crude oil," explains Paola Rodríguez-Masiu, senior oil market analyst at the energy consultancy firm Rystad Energy.
Russian Energy Minister Alexander Novak said on Friday that the reduction in oil demand by 2020 is expected to be around nine or ten million barrels, according to the FX Street website. Saudi Arabia, Russia and other OPEC (Organization of Petroleum Exporting Countries) producers agreed last April to cut production by nearly 10 million barrels per day, about 10% of world supply, to boost prices. This move has had an effect and in August the OPEC group reduced the production cut in the face of the rise in the price of the barrel. US companies have started to increase their drilling for new supplies as a result of the price increase, according to Reuters.
"There is great uncertainty in the oil market. We do not believe that barrel prices will soon recover even close to the $50 per barrel level, unless OPEC makes further cuts. Although that is the ideal scenario, it is unlikely to happen," said Rodriguez-Masiu. The analyst indicates that OPEC will now focus on ensuring that the organisation's member countries comply strictly with the agreed cuts, and will put great pressure on those who fail to do so. "This is not an easy task," she concludes.