Refiners in Europe, US Refuse Extra Saudi Oil Despite Discount

Many refiners in Europe(Nyheter) and the U.S. are refusing to take more Saudi crude being offered at cut-rate prices, according to Saudi officials and oil traders–threatening the sustainability of a price war and battle for market share started by Riyadh.
Saudi Arabian Oil Co. said earlier this month it was cutting most of its prices and planned to boost its production by 2.5 million barrels a day next month. It acted after Russia refused to join a proposed output cut by the Saudi-led Organization of the Petroleum Exporting Countries.
Waning demand from a falloff in economic activity–first in China and now in the rest of the world–has sent crude prices tumbling. Amid falling demand in Europe and the U.S., Saudi Arabia is struggling to find new buyers for its crude in those markets, even at its sharply reduced prices.
Buyers are already struggling with a lack of storage capacity, making new purchases more difficult.
Traders said Saudi Arabia is also facing diminishing demand in India after the world’s second most populous country was largely put on lockdown this week to avoid virus contamination. As a result, at least 52 ports–many of them oil terminals–have declared force majeure in India, and are no longer accepting cargos, according to shipping logistics firm Gulf Agency Company Ltd.
Meanwhile, Brent–the international benchmark against which Saudi high-quality grades are compared in Europe–has fallen far more steeply than the Saudi price. That suggests that Riyadh will need to cut those prices even further next month to stay competitive. While crude trades widely on spot markets all over the world, Saudi Arabia tends to lock in prices with customers for a month at a time.
Saudi crude isn’t the only oil being turned away. One Japanese trading house in Europe is offering to resell an allocation of oil it bought from the United Arab Emirates, for a 10% discount, because it can’t find any buyers, a European trader said. “It’s a deathly spiral,” he added.
The Saudi price cuts were aimed directly at winning market share, from Russia particularly in parts of Europe. But traders say Russia has been able to redirect its European sales to China–where demand is slowly recovering.