InvestorQ : Why is Saudi Arabia cutting oil prices and what does that mean for global crude prices?
Dilmini Mercia made post

Why is Saudi Arabia cutting oil prices and what does that mean for global crude prices?

Answer
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Dawn Cherian answered.
3 weeks ago


In what could be a portent of an impending slowdown in oil demand and lower crude prices, Saudi Arabia started cutting oil prices to its Asian customers. Apparently, the OPEC in general and Saudi Arabia in particular is not too positive about oil demand in 2020-21.

Oil demand is expected to remain under stress as a fresh wave of COVID-19 threatens to hit back. Some of the biggest markets like the United States and India are not only seeing rising numbers but are also seeing fresh waves of relapses happening.

As a result, Aramco has gone to the extent of cutting the price of crude to a discount to the benchmark for the first time since June this year. This is even after Russia and OPEC had agreed to slash oil production by 10 million bpd earlier in April this year.

Clearly, that has not really helped the demand / supply equation to turn favourable. One reason is tepid refinery demand. GRMs or gross refining margins are still quite weak due to which the refinery demand for crude has softened in a big way.

Interestingly, Asian economies including India and China, had built up stockpiles when oil price had fallen earlier this year. They are using that up first. Aramco exports to the US have fallen to the lowest in several decades and the indication is clearly of lower crude prices ahead.