Crude Oil Producers Engage in Cutthroat Competition Amid Weak Demand

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] As crude oil producers suffer from decreased demand due to the novel coronavirus disease (COVID-19), they are engaging in aggressive discount competition to secure buyers.

According to Bloomberg on the 7th, as the global oil demand plummeted due to the economic shock caused by COVID-19, refiners are significantly lowering crude oil prices to clear accumulated inventories.

Oil traders reported that the spot price of Russian Sokol crude oil traded this week at an $8 discount per barrel compared to Dubai crude.

This is the lowest price in over five years, dropping a staggering $11 from the previous transaction price of Russian Sokol spot crude.

The spot price of Australia's Baranus traded this week at a $13 to $14 discount per barrel compared to London Brent crude.

Although oil futures prices surged by as much as 40% last week on expectations of global oil production cuts led by U.S. President Donald Trump, the lack of storage facilities to hold produced crude oil inventories has made a crash in oil prices inevitable.

Worldwide storage tanks, including the 45 million barrel capacity tank in Africa's Saldanhaman hub, are rapidly filling up, and ultra-large crude carriers are being leased long-term for oil storage.

Currently, countries around the world are enforcing measures such as travel restrictions and factory shutdowns to curb the spread of COVID-19, causing a sharp decline in consumption of jet fuel and gasoline.

However, while economic activities are gradually resuming in China, sparking some hope for increased demand, in India, port activities have decreased and regional lockdown measures have led to significantly low crude oil refining rates.