Page 14 - MEOG Week 19

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its economy to counter the coronavirus and its refiners reduced operating runs and rerouted cargoes. The increase in Saudi exports to India in april almost exactly offset the decline in Iraqi sales. Saudi arabia won market share from Iraq amid India’s lockdown and, like other producers, must contend with a plunge in demand owing to coronavirus lockdowns. Brent crude has lost about half its value this year, and the benchmark closed at just under $31 a barrel on Friday, the highest since early april.
Saudi aramco made deeper pricing cuts than Iraq for its key grade for sale to asia for both april and May. Barrels of Saudi arab Light crude are even selling at a rare discount to Iraqi barrels for May.
Oil pricing reductions undercut Iraq in mar- ket share battle
aramco generally exports to North america from the Persian Gulf, but april’s flows included the first observed cargo from one of the king- dom’s red Sea ports to the US West Coast in at least three years. a second shipment embarked on the same route in early May.
Figures for the amount of oil loaded for a specific location may rise because some tankers have yet to indicate their final destinations.
The Saudis aim to defend sales from compet- ing crude from the US, russia and africa, said Gavin Thompson, vice-chairman for energy in the asia-Pacific region at consultant Wood Mac- kenzie. aramco’s pricing cuts for May “gave clear notice of its strategic goal to ensure that its crude remains highly competitive in asia,” he said in a note.
Oil headed for its first back-to-back weekly gain since February as output cuts from the biggest producers and a nascent recovery in demand began to rebalance a market awash with crude.
Futures in New York rose toward $25 per bar- rel ten days ago and were up about 21% last week. Saudi arabia, the world’s largest oil exporter, raised the cost of almost all grades for June, suggesting it is more interested in supporting a recovery in prices than competing for market share.
There was also more evidence demand is starting to come back in the US. Gasoline sup- plied, an indicator of consumption, rose by the most in almost two years last week, while
Genscape reported that stockpiles at the stor- age hub at Cushing, Oklahoma had fallen since last Friday, which would be the first contraction since late February if confirmed by government data.
While there is still a substantial glut to clear, the numbers are prompting optimistic assess- ments from some influential energy analysts. Global oil demand is on an “improving tra- jectory” and may exceed supply by the start of June, said Jeffrey Currie, head of commodities research at Goldman Sachs. The market will return to balance in July before moving into excess consumption for the rest of the year, according to Standard Chartered.
The “massive” price hikes by Saudi arabia “show the willingness to bury the hatchet with russia in the price war,” said Eugen Weinberg, Commerzbank’s head of commodity research.
recent gains in the market are largely down to a combination of higher risk appetite and expectations for stronger demand, he said. “We consider the price increase overdone, however.”
US benchmark crude needs to be capped at about $25 per barrel to force producers to curtail output, according to Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas. That price level keeps supply from overwhelm- ing capacity at Cushing.
“You need to make sure that production declines, to avert the containment issue at the storage hub,” he said.
West Texas Intermediate (WTI) for June delivery almost reached $24 a barrel on the New York Mercantile Exchange and Brent for July set- tlement was just under $30, a significant advance for the week.
While the Saudi pricing announcement brought relief to the market, a robust increase in demand will be needed to sustain higher prices.
The kingdom began curbing production in late april as part of the OPEC+ deal, but still exported record amounts of crude last month. The level of excess global supply averaged 21.3mn bpd in april, according to Standard Chartered.
US weekly gasoline supplied rose by 804,000 bpd last week, the biggest jump since June 2018, according the Energy Information administra- tion (EIa). The fuel’s premium to diesel climbed to its highest since 2017.™
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w w w . N E W S B A S E . c o m Week 19 13•May•2020