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Saudi Aramco boosts European crude inventories in bid to gain market share

Highlights

Despite low prices prompt demand is thin on uncertain outlook

More than 1.1 mil b/d of Saudi crude to flow to Europe in April

Aramco has overseas storage in Japan, Egypt, Netherlands

London — Saudi oil giant Saudi Aramco is moving a substantial amount of its crude to storage caverns in Rotterdam in the Netherlands and Sidi Kerir in Egypt, in line with pledges by the world's largest exporter to supply more barrels to the market in April, shipping and trading sources said Thursday.

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With refinery demand severely weakened by the coronavirus pandemic, sources said Aramco was making use of its storage hubs near the world's key refineries.

This week five tankers carrying a total of 7 million barrels of crude have been placed on subjects on a Sidi Kerir to Rotterdam voyage by Saudi state-owned shipping company Bahri, according to sources.

All these tankers are poised to load in the first week of April, with three Suexmazes and two VLCCs being used.

It is very rare for Saudi Aramco to send so much crude to Rotterdam, sources said.

This was another sign that end-use prompt demand was not a strong but "the close proximity of this oil to Europe's biggest refining hub means this gives Aramco a good opportunity once demand rebounds," one source said.

Aramco mainly stores crude in its domestic tanks but it also has storage in Okinawa, Japan; Rotterdam and Sidi Kerir.

Saudi Aramco Overseas Company (AOC), a subsidiary of Saudi Aramco, bough storage space in Rotterdam in mid-2017 in a bid to increase its market share Europe, which has normally been dominated by Russia.

Last week, Aramco notified its European and Western buyers that it will be unable to provide compensation in freight as sharp cuts in its official selling prices have resulted in a massive surge in tanker costs.

This is also one reason why Saudi is sending more oil into storage since this move is expected to reduce demand.

Representatives at Aramco and Bahri were unavailable for comment.

EUROPE FLOWS

Sources said more than 1.1 million b/d of Saudi crude is expected to flow to Europe.

Around 800,000 to 1 million b/d or 10%-15% of Saudi crude exports, has recently travelled to Europe, with France, the Netherlands, Poland, Greece and Spain making up the key demand hubs, according to S&P Global Platts estimates.

The bulk of Saudi oil bound for Europe is exported from Sidi Kerir via the SUMED pipeline, while the rest come directly from Saudi oil terminals, chiefly Ras Tanura.

Refineries in Europe are often complex and rely on a diet of heavy and medium sour crudes such as Russia's Urals, Iraq's Basrah Light, the UK's Forties and Saudi Arabia's Arabian Light.

This comes after the OPEC kingpin Saudi Arabia slashed April official selling prices to lure buyers to take more of its crude.

Saudi Arabia is currently embroiled in an protracted oil price battle, with its energy ministry instructing Aramco to supply the market with 12.3 million b/d of crude "over the coming months."

That is some 25% above its current supply, and will be a record high for the kingdom.

Aramco can pump at its maximum 12 million b/d capacity for a year without any new investment, its CEO said last week. The remaining 300,000 b/d will be drawn from the company's vast global storage network.

Saudi Arabia has appeared intent on flooding the market ever since the three-year OPEC production cut pact with Russia and other allies collapsed on March 6.