(Bloomberg) -- Saudi Arabia kick started an all-in oil price war on Saturday, slashing the official selling prices for its flagship crude Arab Light by the most in 20 years, in an effort to push as many barrels into the market as possible.

The cut by Saudi Aramco, the state-owned oil company, came after the collapse of the OPEC+ talks a day earlier, ending the cooperation between Saudi Arabia and Russia that has underpinned oil prices since 2016.

The state producer lowered April pricing for crude oil sales to Asia by $4-$6 a barrel to Asia and to the U.S. by $7 a barrel, according to a copy of the announcement seen by Bloomberg, as the coronavirus erodes demand and cohesion in the OPEC+ alliance crumbled in Vienna.

Aramco cut its official selling price for flagship Arab Light crude to buyers in Asia by $6 a barrel, to a discount of $3.10 below the Middle East benchmark. The cuts eclipsed the $1.90 reduction expected by traders and refiners.

The drop is the first indication of how Aramco will respond to the break up of the OPEC+ alliance. Talks in Vienna ended in dramatic failure on Friday as Saudi Arabia’s gamble to get Russia to agree to a prolonged and deeper cut failed to pay off.

Unshackled from the cartel’s restrictions and with budget holes to fill, there is every chance members of OPEC+ could ramp up output. A reduction in OSPs suggests the producer is looking to do just that.

Aramco sets every month the official selling price of its crude as a differential -- a premium or discount -- against an oil benchmark. The changes usually are measured in a few cents and, at most, a couple of dollars. But on Thursday, Aramco slashed the OSP by as much as $8 a barrel, the biggest change on Bloomberg data going back two decades.

The world’s biggest oil exporter had expected to announce the pricing on Thursday but delayed its decision until after a meeting on Friday between the Organization of Petroleum Exporting Countries and allies including Russia. Aramco wanted to wait for the OPEC+ coalition to determine output levels for individual member countries before determining its pricing for April, according to people with knowledge of the situation.

The postponement marked the first time in at least a decade that Aramco missed its pricing schedule. It typically announces pricing for its crude on the fifth day of each month.

Key Insights

  • Oil in London plunged the most since 2008 on signs of a breakdown in the global producer alliance that helped engineer crude’s recovery from the worst crash in a generation.
  • Brent has dropped about 20% this year as the spreading coronavirus eats away at oil demand, exacerbating an oversupply led by surging U.S. exports.
  • The price reduction for Asia is Aramco’s second consecutive monthly decrease the world’s largest oil-consuming region.
  • Refiners in China asked for less oil from some suppliers for March as storage tanks began to fill.
  • The company’s pricing decision affects about 14 million barrels a day of oil exports, as other producers in the Persian Gulf region follow its lead in setting prices for their own shipments.

Know More

  • Aramco cut all pricing to the U.S. by $7 a barrel.
  • Aramco decreased all pricing to NW Europe and the Mediterranean region by between $6-$8 a barrel.

To contact the reporter on this story: Anthony DiPaola in Dubai at adipaola@bloomberg.net

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Christopher Sell, James Amott

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