Page 4 - AsianOil Week 10

AsianOil ASIA-PACIFIC AsianOil
Asia’s biggest oil producers size up low price environment
Oil prices, already under pressure from the spread of COVID-19, have fallen to four-year lows as Saudi Arabia and Russia engage in a price war
COMMENTARY
WHAT:
The Brent benchmark crude is trading below $40 per barrel.
WHY:
Saudi Arabia and Russia will ramp up output after failing to agree on production cuts.
WHAT NEXT:
Asia’s oil producers will likely trim output in a $30 per barrel oil price environment.
ASIA’S crude producing countries are weighing their response to the past week’s oil price crash, triggered by Russia and Saudi Arabia’s inability to agree on production cuts as well as the corona- virus (COVID-19) pandemic. While a few state- run oil majors have decided to keep investment plans in place, more still are watching and wait- ing to see how events continue to unfold.
Oil prices were already struggling under the weight of depressed demand following the global spread of COVID-19, which has seen major events cancelled and countries introduce increasingly strict travel restrictions. But Russia’s refusal to back Saudi Arabia’s proposed produc- tion cuts on March 6 has set the stage for a poten- tially ruinous price war.
Saudi Arabia has said state-run Saudi Ara- mco will pump 12.3mn barrels per day of oil starting from April, 300,000 bpd in excess of the kingdom’s maximum sustained capacity of 12mn bpd. The declaration contributed to a 30% one-day plunge in oil prices on March 9, with an intra-day low of $31 per barrel recorded. While prices have recovered slightly to around $34 per barrel, Brent is still trading at less than half of its 52-week high of $75 per barrel.
Asia’s oil importing countries generally stand to benefit from an all-out oil price war, though there will be the inevitable exceptions.
Fill ‘em up
Aramco’s move on March 7 to lower its official selling price (OSP) for April crude sales to Asia by $4-6 per barrel has been met with glee by Indonesia. The government has been putting pressure on state-owned Pertamina to import less oil and increase its purchases from local oil contractors in order to reduce its trade deficit.
The Indonesian Energy Ministry’s acting Oil and Gas Director-General, Ego Syahrial, told reporters on March 9 that Jakarta intended to ramp up oil imports to take advantage of the price collapse.
“With oil prices slumped, we should enjoy it. Pertamina will buy as much as possible, we have tankstofill,”Syahrialsaid.Theofficialaddedthat the government preferred Pertamina to increase its imports under long-term supply contracts.
Pertamina received a 2020 crude import quota of 50mn barrels (137,000 bpd) from the energy ministry earlier this year, around 30mn barrels (82,000 bpd) less than it had originally requested. Pertamina imported 212,000 bpd of crude in 2019, down from 339,000 bpd in 2018.
Jakarta reduced the quota to force Pertam- ina to open negotiations with domestic oil contractors. The government introduced a rule in 2018 requiring contractors to sell almost all of their output to the state major, exempting
P4
w w w . N E W S B A S E . c o m Week 10 12•March•2020