By Shu Zhang
SINGAPORE (Reuters) – Oil producers have embarked on a global round of price cuts and production boosts as part of a fight for market share, ignited by top exporters Saudi Arabia and Russia, that has wiped more than 40% off the international oil market this year.
Following the collapse last week of coordinated output cuts by Saudi Arabia, Russia and other major producers, Saudi Arabia said on Wednesday it would boost oil production capacity for the first time in more than a decade to 13 million barrels per day (bpd).
A day earlier, it announced a record increase in crude supply to 12.3 million bpd in April.
United Arab Emirates’ ADNOC joined in with a promise to increase production to more than 4 million barrels per day (mmbpd) in April, and accelerate a capacity expansion to 5 mmbpd.
These increases followed news on Tuesday that Russian oil companies might boost output by as much as 500,000 bpd, which sent the Russian rouble and stock markets plunging and delivered a fresh blow to crude prices that had already fallen by 25% on Monday.
“Anything can happen in a crazy market,” said a trader, who asked not to be named, from a Chinese refinery that has aggressively stepped up its purchase of cut-price Middle East crude.
(Graphic: Major milestones for big moves in light crude oil prices – https://fingfx.thomsonreuters.com/gfx/ce/7/8932/8913/USCrudeOilMilestones.png)
Adding to the melee, Iraq, Kuwait and UAE – all members of producer group the Organization of the Petroleum Exporting Countries (OPEC) – announced aggressive cuts to official selling prices (OSPs) <OSP/WLD> this week to ensure their own sales were sustained.
(Graphic: Major oil exporters slash crude export prices in market share melee – https://fingfx.thomsonreuters.com/gfx/ce/7/9009/8990/CrudeOSPetc.png)
Another OPEC member, sanctions-hit Venezuela offered its flagship Merey heavy grade at a whopping $23 per barrel discount to benchmark Brent crude, equivalent to less than $14 a barrel on Wednesday.
In addition to price cuts, some producers sought to get ahead of competitors by offering cargoes earlier than usual.
Russia’s Surgutneftegaz <SNGS.MM> offered eight May-loading cargoes of ESPO Blend crude in a single tender and the grade’s spot premiums fell to 10-year lows.
Despite the onslaught of offers, many refiners in Asia – the top buying region – were in no hurry to buy spot cargoes as they awaited allocation results from Middle East producers and to see if prices slide further in this “crazy, crazy” market, traders said.
“Now people are still waiting to see where the (physical) market is heading,” a Singapore-based oil trader said.
“If Saudis allocate that much crude for term contract holders, buyers would be slow to come to the spot market. Buyers are not in a rush and want to see if sellers would eventually offer cargoes at ultra-low prices.”
(Reporting By Shu Zhang; editing By Gavin Maguire and Barbara Lewis)