Aramco gains a foothold in Russia’s backyard with Polish oil deal | OPEC News

Aramco, the world’s largest oil company, will buy 30% of a refinery on the Baltic coast, as well as a wholesale unit of fuel.

Through Bloomberg

Saudi Aramco‘s deal to supply nearly half of Poland’s oil will give the world’s largest crude exporter a stronger hold in a region that Russian producers have long dominated.

Aramco, the world’s largest oil company, will buy 30% of a refinery on the Baltic coast, as well as a wholesale unit of fuel. It also signed a long-term delivery agreement with Polish refiner PKN Orlen SA.

The Saudi government-owned oil giant will increase oil sales in Russia’s energy backyard just as the two countries, which are co-leaders of the OPEC + producer alliance, work to end the near two years of production cuts they implemented with the start of the pandemic.

The deal could have implications beyond Poland, as Orlen could use the crude at refineries in Lithuania and the Czech Republic. Many factories in Eastern Europe have been designed to work with Russian Urals quality, and some may require technical adjustments to use different barrels. Saudi Arabian and Iraqi crude regularly competes with Russian barrels for customers.

The Aramco purchase “will expand the company’s presence in the European refining system with a stake in a recently upgraded refinery,” Bloomberg Intelligence analysts Salih Yilmaz and Rob Barnett wrote in a research note. It will also help Aramco to “strengthen its position in a region traditionally dominated by Russian crude.”

Keen competition

The 23-member OPEC + alliance has cut production since 2020 to support oil markets after the pandemic forced governments to shut down economies, limiting demand. Now, with economies recovering and oil trading above $ 80 a barrel, the group is gradually reversing those cuts and bringing more oil back to the market.

Competition for customers remains fierce among the world’s major producers, even though they work together to control supply. Russia exports oil by pipeline to Asia, where it competes with Saudi barrels in Aramco’s largest market.

European sales represent a small part of the daily crude fleet leaving Saudi Arabia for world markets. Shipments to China alone account for about a quarter of the kingdom’s nearly 7 million barrels of daily crude sales, according to data compiled by Bloomberg.

By comparison, the Saudis will sell a maximum of 337,000 barrels of crude per day to Poland, according to a statement from Orlen. This is up from previous contracts which allowed Orlen to purchase around 100,000 barrels of Saudi oil a day. The new deal will cover nearly half of the country’s crude needs, according to Orlen CEO Daniel Obajtek.

OPEC + output

The Organization of the Petroleum Exporting Countries, of which Saudi Arabia is the largest producer, said it would continue to cooperate with the other petro-states in the alliance, led by Russia, even after the end of the series of reductions in progress. The group also said it might not reverse all production cuts this year if demand worsens.

With Saudi production surpassing 10 million barrels per day last month, the first time since April 2020, competition for buyers around the world is expected to intensify. While OPEC + members are expected to increase production next month in line with the group’s plans, production in Russia is capped due to lack of spare capacity and any future growth will be mainly supported by additional drilling.

The last time Saudi output was as high as it is now, Saudi Arabia and Russia were locked in a brief price war, when the two countries increased output after previous cooperation collapsed. of OPEC +.

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