The new terms offered to at least four refineries in Asia and Europe are seen as part of Saudi Arabia’s efforts to increase its market share.
- Last update: April 16, 2020, 12:49 p.m.
New Delhi: Saudi Aramco has given oil refineries in Asia and Europe the ability to delay payments for raw freight deliveries by up to 90 days as facilities struggle with falling demand, four sources told the refinery industry.
The credit terms that Saudi Arabia’s national oil company has offered through unidentified Saudi banks are also seen as part of the country’s efforts to increase its market share, sources told Reuters.
Aramco later said in a statement that it “has not made extended payment terms for crude oil sales.”
Aramco “is asking us to change our existing agreement to include a bill that basically gives you the option to pay through a bank within 90 days,” said a source from an Asian refinery company.
According to the terms, Aramco will receive payment for the loads from the same bank within 21 days of shipping, he said.
The new conditions that will be offered to at least four refineries in Asia and Europe could reduce the short-term financial burden for refineries struggling with a slump in oil demand worldwide due to movement restrictions associated with corona viruses.
According to sources from four refineries, however, they will lead to higher overall costs due to more expensive financing conditions.
As a result, at least three refineries have rejected the terms, sources said.
“It’s … useful for people who actually want to roll or spin money (but) it costs something. We’re actually trying to lower our total cost,” said the first source.
The organization of the petroleum exporting countries joined last week with Russia and other oil producers – a group called OPEC + – with other producing countries, including the United States, to form an agreement to remove a total of approximately 19.5 million barrels per Day (bpd) from the market given the slump in demand.
The agreement followed a sharp drop in oil prices to below $ 20 a barrel after Saudi Arabia and Russia started a price war to try to increase their market share after a four-year production cut contract ended.
“After the OPEC + deal, Saudi’s agenda remains largely intact as pressure on US and international oil companies is maintained while the passive aggressive price war with other producers continues,” said Christyan Malek, JPMorgan’s leading European oil and gas analyst .