Saudi Arabia in Struggle for the Chinese Oil Market: the Price War as Necessity

Abstract

The new agreement between the OPEC members and a group of non-OPEC countries (so called OPEC+ group) that was reached on 12 April 2020 does not necessarily mean the end of the price war. Starting from May, the participants of the renewed Vienna agreement are expected to cut their production by 9.7 million barrels a day in order to raise and maintain the stability of the oil prices. The deal is also supposed to end the oil price war which started after the failure of the previous attempt by the OPEC+1 to coordinate the production cuts for April and beyond. However, this will not happen, at least for now. In mid-April, Saudi Arabia surprised market observers by the declaration of official selling prices (OSP) on its oil for May. Initial expectations were that, in May, Riyadh would increase them to support the common OPEC+ struggle for higher oil prices. However, while raising the OSPs for the US market and keeping them close to the April's low level for Europe, Riyadh further downed prices for Asia.2 Moreover, as reported by Reuters, Saudi Aramco tried to provide its oil consumers with options to delay payments for supplies for up to 90 days. These moves clearly showed that Saudi authorities continue their struggle for dominance at the oil markets and consider Asia (first of all, China) as their top priority in this fight. However, this decision by Riyadh should have been expected.