Well-Oiled Plan Keeps Cost Of Crude Down

Saudi Arabia has switched on two huge new oil refineries that are likely to leave the price of crude languishing at around $50 a barrel for the foreseeable future.

In a war of attrition between oil producing nations, the big players are all scared of blinking first and turning off the flow in case they lose market share to their rivals.

Now, the Saudis have upped their game by offering cheaper and more efficient refining to other producers by bringing the new plants on line.

Oil refiners are reaping profits from producers with a lack of facilities who have to ship or pipe their oil to other countries for refining into the final product.

Saudi Arabia has ripped that business away from refineries further afield as the nation lies closer to many major oil producers than overseas refiners.

Shrewd move

In a shrewd business move, Saudi Arabia can still make a decent margin on refining but the overall cost is cheaper because less expensive transportation is involved in the equation.

The benefit is also felt within Saudi Arabia, which as the world’s largest oil producer, now has less of a need to share margins with out of country refineries.

The two new refineries can handle 800,000 barrels a day.

But sometime soon, something has to give in the oil market.

Production is still pumping out crude at all-time high levels, more refineries are working to turn the crude into energy products wanted by industrial and developed nations, but the storage tanks are almost full to capacity.

Cold winter hopes

Huge storage facilities in the Netherlands and Singapore report record capacity.

“A glut of oil is keeping the price down and economics says excessive supply coupled with decreasing demand will keep a lid on the gusher funding growth in the Middle East and North Africa” says James Green Devere Group

Saudi Arabia and the United Arab Emirates have already announced less public spending and are working to diversify their economies away from reliance on oil.

Many say the only hope for the price of oil is a long, cold winter in North America and Europe that will suck storage tanks dry.

 

But that’s a double-edged sword, because heating will increase demand at the same time as bad weather means less call for gasoline from drivers and the transport industry.