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How do you sell more oil?

In the short term it is not by killing the flat price

You do it by Dropping differentials and make refinery margins higher, therefore refineries buy more. Product Cracks fall due to oversupply stimulating demand.

2. Why has flat price have no real effect on refinery buying?

It is because Product prices are typically calculated by a benchmark oil price +/- crack.

Therefore as the price of oil drops so does the product price. Refinery really gains nothing from it.
3. But differential is different. It is basically the quality value of the crude versus the benchmark.

In theory it should be + or - to the benchmark depending on the margin it produces versus the benchmark in an Atmospheric
Distillation column.
4. By artificially reducing its OSP’s (differentials) to way below market levels, Saudi will force all other crude producers to reduce their differentials as well or otherwise everybody will try to buy from Saudi. Therefore all Crudes will improve versus the benchmark.
5. So how does this stimulate demand?

Simple Refinery margin without secondary units is simply total of product prices - crude price

As said before each product price is the oil benchmark price +/- product crack

Crude price is benchmark price +/- differential - freight
6. Therefore you see that effectively the margin is the sum of the product cracks - the differential - the freight

So you can see that by dropping the differential as Saudi has done increases the refinery margin. Which means refineries run harder and buy more Saudi crude
7. A $6-$7 drop in Saudi OSPs is $6-$7m straight to the refineries margin. In other words what Saudi have done is far cleverer than just a price war that Russia started. It hurts both the opposition and also stimulates demand.
8. But this means Refiners will over produce and that will eventually start to drop the crack prices reducing the refinery margin. But dropping crack prices is the same as dropping the flat price it makes products cheaper for consumers therefore stimulating demand from consumers.
9. But remember, These OSPs are for loading in April so they will not be run before May and are more likely to be run in June and July. Hopefully that will be past the Zenith of the Coronavirus and demand will be recuperating so It will further stimulate demand post drop.
10. If coronavirus goes on longer, Saudi can continue to stimulate demand for their crude by continuing to reduce differentials. Flooding the market may work because Saudi only issue prices 1 per month while others can then react to their prices and undercut them like Iraq/Iran.
11. Therefore, does not necessarily mean it is a price war started by Saudi but rather a way to stimulate demand at lower prices and sell more as @anasalhajji stated in his tweet above. But it’s effect will also take out weak producers as it does reduce price producers receive
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