2024-01-09 20:45:00
It’s the classic equation for a company facing competition: reduce its prices to maintain its market share. On Sunday, Aramco, the royal company of Saudi Arabia, which is among the largest oil companies in the world, told its Asian, European and American customers that it would lower the official price of its crude oil by 1.5 dollars to 2 dollars per barrel from February. The kingdom exported an average of 6.3 million barrels per day (mb/d) in 2023.
The third largest capitalization in the world behind Apple and Microsoft sees itself in competition with refiners by other crude oils in the region with more attractive prices. The refiners’ margin is made up of the difference between the price of crude oil and the price of the refined product, for example diesel or gasoline. It is especially in Asia (China, Japan, South Korea, India and the Philippines), where Aramco achieves between 70% and 80% of its sales of crude oil and refined products, that market shares are most contested.
Provider of revenue for the public budget
Unlike a private company, Aramco, which is the main provider of revenue to the Saudi kingdom to fund its public budget, must take into account a political framework, set both by the government and by the country’s participation in OPEC, the organization of 13 exporting countries, of which it is the de facto leader, which has entered into an alliance with 10 other countries (11 since January 1 with the arrival of Brazil) including Russia.
However, tensions have emerged within the cartel, with certain African countries such as Nigeria and Angola refusing to have their production quotas reduced, which pushed Angola to announce its departure from the organization itself. if to this day the country is still formally a member.
Indeed, the effort to reduce OPEC+ production is mainly provided by Saudi Arabia, and to a lesser extent by Russia, under sanctions from the G7 countries and their allies, supposed to restrict its volumes of export. The kingdom has reduced its extractions by 2 million barrels per day, or some 16% of its production, since last November.
Slowing global economic growth
But this policy is reaching its limits. On the one hand, the cartel’s cuts have been largely offset by non-OPEC+ countries such as the United States, Canada, Brazil and Guyana, and on the other hand the outlook for global oil demand in the coming months of 2024 are rather revised downwards. This also gave rise to a controversy between OPEC and the International Energy Agency (IEA), the first considering that the second underestimated future global needs. The first predicts that we will burn on average 1 mb/d more in 2024 than in 2023, or 102.8 mb/d, while the second predicts an increase in needs next year of 2.2 mb/d, or 104.3 mb/d. A difference which can be explained by the divergence in the growth prospects of emerging countries, notably China.
However, the latter, the world’s largest oil importer, loaded 1.38 mb/d of Saudi crude in December, compared to 1.7 mb/d in November, the lowest volume since July, according to data compiled by LSEG Oil Research, cited by Archyde.com.
Three Asian customers of Saudi crude, interviewed by the Bloomberg agency, also indicated that Aramco’s price drop would not lead them to increase their deliveries, as the maintenance period in Asian refineries looms. In contrast, Chinese imports from the United States were 430,000 b/d in December, up from 220,000 b/d in November and the highest since June, while those from Brazil were 840,000 b/d, up from 810,000 b/d in November, a third consecutive monthly increase.
This orientation of the oil market is a setback for the Saudi Minister of Energy, Prince Abdulaziz bin Salman, who has not failed to regularly criticize the “speculators” on the oil futures markets which “short” the market, in other words which sell barrels today for a more distant maturity, betting that prices will be lower when they have to deliver the barrels.
But investors have integrated in recent months that during the first half of 2024 the global economic slowdown will accentuate in particular with a rather gloomy economic situation in China, as recognized by the highest leaders of the Communist Party (CCP) by conceding in December that the country would meet “ difficulties » to revive the country’s economic activity.
Replenishment of global stocks
Investors therefore judge that OPEC+ cuts will not prevent the rebuilding of stocks across the world, a factor in easing oil prices. In the week ending January 2, investment funds reduced their long (long) positions. “This materialized in a downward flow of $5.2 billion, which came mainly from the creation of short (short) positions”pointed out the raw materials experts at SG on Monday in their weekly report.
In the short term, geopolitical tensions, particularly in the Middle East, where the Yemeni Houthi rebellion is disrupting maritime flows in the Red Sea through which 9% of maritime oil transport passes, are likely to push prices up. Likewise, disruptions in oil production in Libya have been a supporting factor in recent days. Tuesday, at the end of the followingnoon, the price of a barrel of Brent was up by some 2%, to 77.6 dollars, that of a barrel of WTI, the American benchmark, increased by 2.4%, to 72, 4 dollars. But over one year, they are down 3.3% and 4.3% respectively.
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