Saudi Aramco gains foothold in Russia’s backyard with Polish oil deal OPEC news

Saudi Aramco, the world’s largest oil company, will buy a 30 percent stake in a refinery on the Baltic coast, as well as a wholesale fuel unit.

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Saudi Aramco has agreed to supply nearly half of Poland’s oil, giving the world’s largest crude exporter a stronger foothold in a region long dominated by Russian producers.

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

The Saudi government-owned oil major will increase oil sales in Russia’s energy backyard as the two countries, co-leaders of the OPEC+ producer coalition, are working to end nearly two years of production cuts they began in January 2019 . epidemic.

The deal could have ramifications outside of Poland, as Orlen could use crude at refineries in Lithuania and the Czech Republic. Many Eastern European plants are designed to use Russian Urals grades, and some may require technical adjustments to use different barrels. Crude from Saudi Arabia and Iraq often competes for customers with Russian barrels.

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

Fierce competition

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

Competition for customers among the world’s top producers remains fierce, even as they work together to control supply. Russia, which exports oil to Asia via pipeline, competes with Saudi oil in Aramco’s biggest market.

European sales represent a small fraction of the daily fleet of crude oil ships from Saudi Arabia to global markets. Shipments to China alone account for about a quarter of the country’s nearly 7 million barrels a day of crude oil sales, according to data compiled by Bloomberg.

By comparison, Saudi Arabia will sell up to 337,000 barrels a day of crude to Poland, according to a statement from Orlen. This is higher than a previous contract that allowed Orlen to buy about 100,000 barrels a day of Saudi oil. According to Orlen CEO Daniel Obajtek, the new agreement will meet nearly half of the country’s crude oil needs.

OPEC+ output

The Organization of the Petroleum Exporting Countries, where Saudi Arabia is the largest producer, said it would continue to work with other oil nations in the coalition led by Russia even after the current round of production cuts ends. The group also said all production cuts may not be lifted this year if demand deteriorates.

Competition for buyers is likely to intensify everywhere as Saudi production topped 10 million barrels a day last month for the first time since April 2020. While OPEC+ members will increase production next month under the group’s plan, Russia’s output is constrained by a lack of spare capacity, and any future growth will be largely supported by additional drilling.

The last time Saudi production was as high as it is now, Saudi Arabia and Russia were locked in a brief price war, with both countries boosting output after a previous OPEC+ partnership collapsed.