FX.co ★ Riyadh wooing buyers by generous discounts

Saudi Arabia is celebrating its triumph in the oil price war unleashed by Russia. Indeed, Moscow rejected the proposal to extend the OPEC+ pact when oil was trading at nearly $60 a barrel. Following Russia’s withdrawal from the deal, oil prices tumbled to multi-year lows without prospects for recovery in the short term amid waning demand for oil. A month later, Moscow had to adjust for a new reality and enter a new agreement on oil production cuts, but on tougher terms. Nevertheless, Saudi Arabia carried on dampening oil prices. On the following day after the new deal had been finalized, the state-run Saudi Aramco stated lower prices in invoices issued for May contracts. Riyadh offered discounts to all its buyers delivering oil to the US, Europe, and Asia. In fact, Saudi Arabia is winning a competitive advantage over all Russian oil grades. The Arab Light grade is sold to the European customers who obviously prefer it to the Russian most popular export grade called Urals. Saudi Aramco made a big discount on its shipments bound for the Mediterranean countries. This came as a blow to Russia’s oil hub in Novorossiysk, thus grabbing a lion’s share of the Russian orders. Asian buyers enjoyed the most generous discounts that dealt a blow to another Russian oil grade, Sokol. As a result, Russia has to slash its oil output by 2.7 million barrels a day, whereas in early March it was invited to trim its oil production by 300,000 a day under the previous OPEC+ deal. Meanwhile, Saudi Arabia is determined to woo customers by discounts, so that Russia is unable to withstand such fierce competition neither in Europe nor Asia.