Saudi’s price cuts for April heap pressure on Urals crude

Crude oil traders in Europe are anticipating a sharp decline in the offer level for Urals, the region’s largest single crude stream, after Saudi Aramco slashed its official selling prices for April cargoes, setting up a price war between the world’s two largest oil exporters.

“March will still come off… people will look to minimize their volume [of Urals] going into April because they know they can get Saudi barrels…the OSPs are so low that Saudi looks much better value,” said one trader.

In the Platts Market on Close assessment process on Monday, Stasco, Vitol and Trafigura were all offering Urals cargoes loading around the end of March and start of April, with the last two outstanding at Dated Brent minus $3.10/b and minus $3/b respectively.

“Everyone will nominate Saudi,” said another trader, referring to the process whereby oil companies that have term contracts with the kingdom can exercise an option to load their full allowance and take advantage of the new competitive pricing.

The opposite effect was visible on the Urals market last month, when ExxonMobil took more Urals crude after traders said that they’d taken a much smaller amount of Saudi oil than usual.

“You won’t get the [Saudi] barrels into your system before mid-April… technically, Urals should be supported until then,” noted the second trader, before adding that he still expected the medium sour grade to be offered lower immediately.

With the specter of COVID-19 and its growing economic consequences hanging over the oil market, Russian energy minister Alexander Novak last week resisted supply cuts that OPEC+ had proposed to redress the balance.

Those reductions had been advocated by Saudi Arabia, with whom Russia has collaborated in recent years. However, the April OSPs, which were published shortly after the talks broke down, showed the kingdom cutting the differentials for most of its crude against ICE Brent by $7/b in the Mediterranean and $8 in Northwest Europe, an unprecedented measure which will make Saudi oil far cheaper than alternatives such as Urals.

Commenting on the cuts, a Saudi industry source said the world’s biggest oil exporter is merely responding to Novak’s comments that countries are no longer bound by their OPEC+ quotas. The current OPEC+ agreement expires at the end of March.
Source: Platts