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Brent Oil Plunges as Saudis Offer Credit to Refiners, Deep Discounts to Asia

imageCommodities11 hours ago (Apr 15, 2020 04:07PM ET)

(C) Reuters.

By Barani Krishnan – Ordinarily, Wednesday is EIA day and WTI should have tumbled on the latest huge build in U.S. crude stockpiles. But it was Brent that took the bigger hit as Saudi Arabia offered generous credit terms to refineries that bought its oil and deep discounts to its Asian customers.

West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled beneath the key $20-per-barrel support, closing down 24 cents, or 1.1%, at $19.87.

WTI hit an 18-year low of $19.21 earlier, after the Washington-based Energy Information Administration reported a record jump of 19.3 million barrels in crude stockpiles for last week. The build was 65% above forecasts and brought inventory gains in U.S. crude to nearly 50 million over the past three weeks.

WTI, however, settled off its lows as market participants noticed that the build for U.S. gasoline stocks came in 25% less forecast. That helped gasoline futures do relatively better and provided some support to crude prices as well, as the “crack”, or refining value, for the fuel rose.

The real story, however, was in Brent, the London-traded global benchmark for crude, which slumped $1.67, or 5.6%, to $27.93 per barrel by 4:00 PM ET (20:00 GMT).

Brent plunged as Saudi Aramco (SE:2222) offered oil refineries in Asia and Europe the option to defer payments for crude cargo deliveries by up to 90 days as plants struggle with shrinking demand, Reuters reported.

The credit terms, which Saudi Arabia’s national oil company offered through unnamed Saudi banks in recent weeks, were part of efforts by Riyadh to bolster the kingdom’s marketd share in crude, Reuters added.

Concurrently, Aramco was also offering Asian buyers of its May Arab light crude oil a discount of $7.30 versus the competing Oman/Dubai average. Just in April, the official selling price for Arab light to Asia was at a discount of $4.20 a barrel.

All these Saudi maneuvers come as the kingdom leads an agreement by global oil producers to cut output by 9.7 million barrels daily amid demand destruction of some 30 million bpd caused by the coronavirus pandemic.

“On one hand, the Saudis are officially with the world in cutting production,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.

“On the other, they’re underpricing the crude they sell to Asia and offering fantastic credit to refiners in both Asia and Europe. All this is perfectly legal but fat hopes for a quick recovery in global oil prices this way.”

Brent was also weakened by the latest demand-supply outlook for oil from the Paris-based International Energy Agency, which projected that demand for crude would drop in April by 29 million barrels a day to levels not seen in a quarter of a century. That would equate to roughly 29% of the world’s 100-million-barrel daily oil-demand figure from 2019.

The IEA also forecast a record demand loss of 9.3 million barrels a day on the average for all of 2020.

Brent Oil Plunges as Saudis Offer Credit to Refiners, Deep Discounts to Asia

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