It is here, rather than in the world of futures prices, that a long-standing battle for market share carries on, particularly in Asia, shipping data analyzed on Monday by Reuters shows.

The rivals said last week they were ready to take measures if necessary to balance the market by cutting combined output with other OPEC+ members from May.

“Beyond the cooperative statements the fight is still going on,” a source at a trading firm told Reuters, adding that Saudi Arabia’s official selling prices (OSPs) signaled that the kingdom was targeting the Asian market, where demand remains relatively resilient during a global slowdown.

Russia has relied on Asian markets as a destination for its oil output since launching the 1.6 million barrel per day ESPO pipeline. This connects Russian fields to Asian markets through the port of Kozmino, the country’s main eastern export outlet, and also via a pipeline spur with China, the biggest Asian consumer.

Saudi Arabia’s state oil company Saudi Aramco and Russia’s Energy Ministry did not immediately respond to requests for comment. Russia’s state oil giant Rosneft declined to comment.

Aramco cut its OSPs to Asia in May by $3 to $5 across all its grades, marking a second month of drastic cuts. Meanwhile, the price reductions on Aramco cargoes to Europe were smaller, with a few increases on its heavier grades.

Likewise, Iraq, the United Arab Emirates and Kuwait slashed May prices on crude destined for Asia.

High supplies of May-loading Saudi crude oil to Asian markets, along with lower OSPs, have tipped differentials of Russian grades like Sokol and ESPO Blend in Asia into freefall.

Both grades, which usually trade at high premiums to the Dubai benchmark, hit record discounts.

SPECIAL OFFERS

Saudi Arabia is also gaining ground in Europe, Russia’s backyard for oil and gas exports.

Saudi sales to Europe are poised to surpass 29 million barrels in April, slightly less than the record of August 2016, shipping data available in Refinitiv Eikon showed.

Supplies of Aramco’s Arab crude oil including Arab Light, the closest grade to Russian flagship in terms of quality, will rise to Italy, Turkey, Greece, France, and Poland in April.

All of these countries are regular buyers of Russian oil.

Polish refineries will import a record 560,000 tonnes of Arab Light crude via Gdansk in April, the data shows.

Poland will not import any sea-borne Russia’s Urals crude this month, for the first time in a long period, while Arab Light oil supplies to Poland will be steady in May, traders said.

“As demand is falling the competition gets even tougher. (The) Saudis don’t mind going the extra mile for the buyer,” a source at a European refiner told Reuters.

“Maybe Russia also should think of special offers.”

In an effort to further entice buyers, Aramco has offered refiners in Asia and Europe the option to defer payments for crude cargo deliveries by up to 90 days, Reuters reported.

Russia’s main advantage in the physical market fight with Saudi Arabia is its sprawling pipeline network, helping it place oil at cheaper rates compared to its rival which has to find tankers and pay for transportation, traders said.

“Russian oil fields (are) connected to refineries in Europe and Asia and oil companies have long-term contracts with them,” a trader in the European oil market told Reuters.

“Unlike Saudi Arabia, it is not subject to freight rates and vessel availability.”

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As is customary, Opec is supposed to reach its 60th year this year, and perhaps it will not celebrate this event as expected, this year.

The reason is Saudi Arabia’s decision to reduce and discount the price of selling oil and increase its production after Russia refused to reduce its oil production.

In Opec, Saudi seems to be punching above its weight, resulting in the breakdown of the joint production agreement between Opec and Opec Plus that came into force in 2017.

Saudi Arabia and the Opec had wanted to decrease production by one million barrels per day and ask for a corresponding decrease of half a million barrels per day from its non-Opec partners, of which Russia is one.

This was widely seen as an urgent measure to support market stability in light of the economic impact of the coronavirus epidemic, but this proposal was not agreed upon by Russia.

Russia had called on Saudi Arabia to increase its production and simultaneously increase the surplus in the market to about 4 million barrels daily in the market of the total promised oil supplies during the next month.

This means that as of April, when the current production cut agreement expires, all producers from inside and outside Opec allies, most notably Russia, Kazakhstan, and Mexico, will be allowed production levels as they wish and without a ceiling, which means dumping a market, already suffering from slowing demand, with additional shipments of oil.

Saudi Arabia is supposed to make options that are in line with the current situation of the oil markets in terms of supply and demand and avoid the flare-up of an all-out oil war, which may lead to the end of Opec as it is betting on making use of its sovereign wealth fund to bridge the rift in the financial situation that will emerge as a result of falling prices.

While the need for more reductions in production is in agreement and coordination with Opec members and Russia; regarding future production, the Opec Plus agreement reflects the solidarity and consensual work as a temporary solution between oil exporters.

This is to maintain the market balance in terms of supplies, consumption, prices and refining capacity of oil refineries in light of the shrinking demand and decline in the global economy.

This decision will negatively affect the economy of Saudi Arabia, as it needs a barrel price of more than $70  in order to be able to balance its budget even though its production cost is only in the range of $7 per barrel.

As for Russia, where production costs are much higher than $20 a barrel, it can balance the budget at a price between $40 and $50 a barrel as it is in a better tax, financial and political leadership position than Saudi Arabia.

It may enable Russia to win the current oil price war.

That said, it depends on the extent of the American-Saudi relations affected by the energy price war and returning to the negotiating table or the drop in oil prices to about $15 per barrel or less soon.

*  Saad Abdulla al-Kuwari graduated in Chemical Engineering from Qatar University and obtained an MBA in Oil & Gas from Liverpool University. He was appointed CEO of Tasweeq in 2010. During his career, he has occupied several key positions in refining projects and processing, oil, gas, and refined products, storage tanks and export terminals operation. He also has considerable experience in the field of Gas Processing Operations. He was also manager of Gas, Oil Petrochemical Marketing in QP Marketing Directorate for several years.

Source: https://www.gulf-times.com/story/659769/Saudi-Russia-oil-price-war-Will-it-script-the-end-

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In early March, Russia and OPEC failed to agree on how their deal to cut oil production should work: OPEC wanted to deepen the cuts while Moscow proposed extending existing curbs. The disagreement came at a time when global demand was slumping because of the impact of the coronavirus pandemic.

Oil prices fell from nearly $50 per barrel on March 6 when the deal collapsed to below $27 on Friday, as Saudi Arabia, the top OPEC player, and Russia, the world’s second-biggest oil exporter after Riyadh, prepare to open the taps from April 1.

“Russian position was never about triggering an oil price fall. This is purely our Arab partners initiative,” Andrei Belousov, Russian first deputy prime minister, was quoted as saying by TASS late on Saturday.

“Even oil companies who are obviously interested to maintain their markets did not have a stance that the deal (OPEC+) should be dissolved.”

Belousov reiterated that Russia was proposing to extend the existing curbs by at least one more quarter and potentially until the end of 2020. “But (our) Arab partners took a different stance,” TASS quoted him as saying.

Igor Sechin, head of Russia’s top oil producer Rosneft (ROSN.MM), has always opposed the three-year-long deal, saying it allows non-members such as the United States to increase their market share at expense of whose cutting supply.

“Is there a point to cut further if other producers will increase?”, Sechin was quoted as saying on Friday in his first public comments since the deal fell apart.

Sechin said he believed that global oil prices could return to $60 per barrel by end-2020 if shale oil is forced out of the market. Belousov believes that oil prices will balance at around $35-40 per barrel.

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Russian President Vladimir Putin and Iranian President Hassan Rouhani attend a joint press conference in the Black Sea resort of Sochi, Russia, on Feb. 14. SERGEI CHIRIKOV/AFP/GETTY IMAGES

Think what you will about Russian President Vladimir Putin, but the man does have a wry sense of humor. Trolling has become one of his trademarks. If Saudi Arabia wants to protect itself, he hinted on Sept. 16, it should make a wise decision and follow Iran and Turkey, who bought Russian air-defense systems. Russia’s S-300 and S-400, he continued “are capable of defending any kind of infrastructure in Saudi Arabia from any kind of attack.” Flanked by Turkish President Recep Tayyip Erdogan and Iranian President Hassan Rouhani at a joint press conference in Ankara, Turkey, following a round of talks on Syria, Putin was poking at another friend of his, Saudi Crown Prince Mohammed bin Salman. “What should the Saudis buy,” Rouhani asked, laughing, “S-300 or S-400?” Putin’s retort was quick: “Let them choose.”

Russia’s response to the recent drone attack on Saudi Aramco oil facilities speaks volumes about its place in the Middle East. Had the crisis occurred several years ago, few would have cared what Moscow thought about Gulf affairs. But now, thanks to its military intervention in Syria, Russia is seen as a power broker. And if the Russian president had said that Russia is “locked and loaded” to respond to Iran’s apparent aggression in Saudi Arabia last weekend, as U.S. President Donald Trump did, he would probably mean it.

Except he won’t say it. Unlike the United States, Russia has no dog in the Iran-Saudi fight. The essence of its policy is to try to be on good terms with everyone: with the Iranians as well as with their foresworn enemies Saudi Arabia and Israel, with Turkey and the Kurds, with Bashar al-Assad’s regime in Damascus and its opponents. With a relatively modest military footprint, Russia is not in the business of playing the local sheriff, and it steers clear of other people’s quarrels. It seeks to make geopolitical and commercial gains without taking excessive risks. That stands in stark contrast with the United States, which, for all intents and purposes, still remains the hegemonic power in the Middle East and as such bears the cost of maintaining order.

Beyond that, troubles in the Gulf benefit Russian interests. The rise of oil prices is good news for the Kremlin. A $1 increase is estimated to bring in an extra $7.5 million in revenue for Russia each day.

No wonder that the Moscow stock market rallied on Monday, with stocks in the state-owned Rosneft energy company up by 5 percent. At the same time, the Russian government is treading with caution. Energy Minister Alexander Novak phoned up his Saudi counterpart, Prince Abdulaziz bin Salman, and signaled that Russia won’t increase production to expand its share of the global market at Riyadh’s expense. The so-called OPEC+ Pact of November 2016, which was aimed at controlling output, is working, with Saudi Arabia and Russia remaining the principal stakeholders.

In past years, the relationship between Saudi Arabia and Russia has thrived. Mohammed bin Salman rubbed shoulders with Putin at the opening game of the 2018 FIFA World Cup. In October 2017, his father, King Salman, became the first Saudi monarch to come to Moscow, a decade after Putin’s official visit to Riyadh, another first. And on Sept.18, Putin had a phone call with the crown prince, confirming he will be coming again this fall. The Russian government used to look at the Gulf as a cauldron of radical Islam spilling its destructive influence in the restless North Caucasus. Nowadays, it is seen as a source of opportunities—whether because of its premium real estate in Dubai catering to well-heeled Russians or lucrative defense markets that can absorb Russian-made gear. Indeed, Putin was only half-joking in Ankara. After all, the Saudi-funded government in Egypt just signed a $2 billion contract to buy 50 of Russia’s MiG-35 fighter jets. Gulf money is already pouring into Russia’s coffers.

Meanwhile, the ongoing rapprochement between Moscow and Riyadh does not change the fact that Iran remains the Russian partner of choice. Although the two countries’ interests are sometimes misaligned, diplomatic, defense, and trading ties with Tehran are better than at any point in history. Together with the Europeans, Russia is a guarantor of the Iran nuclear deal, or whatever remains of it. Putin is now posing as a peacemaker in Yemen, too. In Ankara this week, he quoted a verse from the Quran: “And remember the favor of Allah upon you—when you were enemies and he brought your hearts together and you became, by his favor, brothers.” Both Rouhani and Erdogan nodded approvingly.

Moscow is also Tehran’s ally in Syria. The three-way summit in Ankara announced progress toward the establishment of a constitutional committee in the war-torn country. In other words, through this meeting, Putin and Rouhani pushed Erdogan one step closer to restoring ties with the Assad regime. Iranians made another important gain in getting Russia (as well as Turkey) to condemn Israeli airstrikes in Syria. Whatever differences the Russians and the Iranians may have on the ground—notably backing rival factions within the Assad regime— they have succeeded in papering over them for now.

Washington’s bellicose rhetoric about Iran is likely to bring Moscow and Tehran even closer. Dmitry Peskov, a Kremlin spokesman, and Sergei Lavrov, the Russian minister of foreign affairs, pushed back strongly against the U.S. line that Iran is to blame for the drone attacks against the oil and gas processing facilities at Khurais and Abqaiq. To be sure, if tensions get out of hand and the United States ends up starting a war against Iran, the Russians will stand on the sidelines. But given the Trump administration’s penchant to rattle sabers and then back away, Putin could well reap another opportunity to burnish his image as the Middle East’s rising star.

Source: https://foreignpolicy.com/2019/09/19/putin-is-trolling-the-united-states-in-the-persian-gulf/

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