(Bloomberg Opinion) – For the second time in three years, Saudi Arabia slashed the volume of crude it sends to the US in an effort to reduce its reserves on the world’s most obvious oil market and thus speed up the process. rebalancing supply and demand.
The weekly US oil inventory data – usually published on Wednesdays and covering the period up to the previous Friday – is frequently of interest to oil and gas analysts and traders. Despite their shortcomings, the figures show the most up-to-date picture of changes in oil balance and influencing crude oil trading and price decisions around the world.
The movement of crude oil flows into and out of US ports can have a big impact on US inventories. Riyadh clearly decided it was time to do a little to bring them down from the heights reached in May and June, when the coronavirus pandemic and the kingdom̵7;s own increase in production combined to boost the fastest increase ever in US commercial crude inventories. In the five weeks from March 20 to April 24, inventories increased at a rate of 2.1 million barrels per day, and by the first week of June it hit a new high.
Excess stocks act as a drag on oil prices, and the most conspicuous stocks are in the US because the Department of Energy’s Energy Information Administration reports weekly levels. That is in stark contrast to other parts of the world where the data is much less timely, if they are to be made public. China, for example, stopped disclosing official data on inventory levels in 2017.
Not surprisingly, Saudi Arabia should focus on the US. This is exactly the same policy it adopted three years ago, shortly after the larger OPEC + coalition was formed and their first output deal was in trouble.
At the time, members of the Organization of Petroleum Exporting Countries and 10 non-OPEC allies, including Russia and Mexico, agreed to cut production by 1.66 million barrels a day since early 2017 to decreased global oil inventories increased as a result of the first US shale boom. The poor execution of the US cuts and rising oil production means inventories continue to increase, even though OPEC has reduced production for the first time in eight years.
Fast until today and the reduction in Saudi oil flow to the US is huge. In May and June, Saudi crude-laden trains arrived off the Gulf and West coasts of the United States almost daily, sometimes more than one per day. But in July and August, the number dropped to just over a week, as the chart below shows.
The spike in ships that I have written here, for a short time, has brought US Saudi crude oil imports to near a six-year high, adding to reserves. But it was short-lived and imports for the last week of July were just 190,000 bpd, the second low in weekly data spanning more than a decade.
This number could decline further in the coming weeks. Only six oil tankers with 9 million barrels of Saudi oil are currently docking in the US as their destination, according to tanker tracking data monitored by Bloomberg. With a journey time of around six weeks from the Persian Gulf to any of the major US oil ports, that’s all Saudi crude is likely to come in mid-September.
And things are unlikely to improve much thereafter. When setting official crude oil prices for September, Saudi Arabia significantly cut prices for European customers, where they were competing with Russia and smaller buyers in Asia. But the kingdom has kept prices for the US unchanged from last month.
That way, Saudi Arabia is making sure its crude is still not able to compete with domestic heavy sour oils from the Gulf of Mexico or imported from Canada, in a market where demand is expected. Recovery has stalled.
The leaders of Saudi Arabia and the United States both want to see oil prices rise from current levels – the kingdom’s budget is still dependent on oil revenues and the US shale industry is in desperate need of prices. than to recover. President Donald Trump may be happy to see a cut back on Saudi crude oil imports – that would, after all, match his rhetoric about US energy dominance.
By once again focusing on production cuts on the US market, Riyadh hopes to repeat the success of the second half of 2017, when oil prices rose 51% from a low of $ 44.82 in mid-June to 67, 87 USD at year end. .
Unless the Covid-19 pandemic eases its hold on oil demand, Saudi Arabia may find the year 2020 even more challenging.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Julian Lee is Bloomberg’s oil strategist. Previously, he was a senior analyst at the Center for Global Energy Research.
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