Saudi Arabia reduces oil prices: who will profit from the fuel discount

Riyadh is intensifying commodity competition with Russia and America

According to Riyadh, there is now an oversupply of energy resources on the world market, as a result of which there is no need for new supplies. On the one hand, Saudi Arabia’s initiative is illogical: in 2023, Arab countries reduced production to stabilize stock exchange prices for raw materials, which continue to fluctuate at $75–80 per barrel. On the other hand, the Saudis are acting rather pragmatically, since the growth of exports from the United States, Venezuela and Iran in the spring can bring down the cost of “black gold” to its minimum levels.

Saudi Arabia is going to reduce the cost of exported oil for all external buyers of raw materials. According to Bloomberg, the discount will be provided not only to importers from European powers, but also to North American and Asian countries, which have recently been increasing imports of energy resources. Seasonal monitoring suggests that in February and March there is a decrease in oil consumption on international commodity trading platforms, as during this period refineries are closed for scheduled maintenance work. As a result, the Saudi Aramco holding reduced the cost of Arab Light fuel by $1.5–2 per barrel for February contracts concluded with consumers from almost all regions of the planet.

International oil traders reacted poorly to the preferences offered by Riyadh. The cost of February and March Brent futures in London fell by only 1% to $78 per barrel. Exchange traders in energy resources previously assumed that after the New Year, Middle Eastern producers would begin to vary the volume of their production capacity and prices for the shipment of raw materials, but forecasts for the offer of preferences were half as low – no more than one dollar per barrel.

At first glance, the conditions proposed by the Saudis seem somewhat illogical. Over the past year, Riyadh, having found support from Moscow, promised to reduce supplies of energy resources to the world market in order to stabilize raw material prices. This goal was achieved – the cost of a barrel was fixed at $80.

“Basic export volumes have indeed been reduced,” notes Sergei Suverov, investment strategist at Arikapital Management Company. Saudi Arabian producers, together with Russia and other members of the OPEC+ alliance, have reduced the export of “black gold” by almost two million barrels per day. At the same time, shale oil production in the United States has increased significantly, and energy supplies from Venezuela and Iran, which until recently were subject to sanctions restricting the foreign sale of hydrocarbons, have partially resumed. According to the expert, an increase in exports by these raw materials countries can undermine the stock price of fuel, so the price heights currently achieved seem rather unstable to many market participants.

“The current position of Saudi Arabia may increase pressure on world oil prices,” says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. Given the current volatility, Riyadh’s decision may not be perceived quite adequately by the world market, which threatens to increase the negative impact on the stock price of “black gold” in the near future.

The “oil future” continues to excite the commodity market. “Price wars usually have an effect on those who dump, hoping to increase or maintain demand for energy resources,” believes BitRiver financial analyst Vladislav Antonov. True, this situation will prevail in a market with a limited number of sellers. There is still high competition on current global trading platforms, especially since such large importers as China and India still have their own hydrocarbon production.

“Saudi Arabia is acting rationally in trying to retain eastern clients. Supplies of energy resources from Russia to Asia are growing every day. Due to the fact that Riyadh will adjust its pricing policy in relation to both OPEC+ production participants and buyers of raw materials around the world, if oil falls below $70 per barrel, then the current preference will benefit all counterparties – producing structures, intermediaries and buyers of energy resources,” says Suverov. — In January, you can expect the Brent price to be around $70–80 per barrel. So far, this cost does not frighten Russian buyers, since it falls within the minimum oil price level set in the federal budget. However, the maximum limits for energy prices have not yet been determined: the cost of energy resources this year will be determined more by political than economic factors.”

Published in the newspaper “Moskovsky Komsomolets” No. 29190 dated January 9, 2024

Newspaper headline:
A barrel of oil is getting cheaper