Saudi walkin' the walk

Jul 28, 2017 9:32:10 AM EST

Back in late May, Saudi Oil Minister Khalid Al-Falih said that 'exports to the U.S. will drop measurably', as the OPEC Kingpin adjusted its focus to reducing exports to the world's most transparent energy hub.

Exports from Saudi to the U.S. take approximately seven weeks to arrive - hence, as we swiftly approach the end of July, we can see from Saudi deliveries this month that they are not just talkin' the talk, but walkin' the walk.

We have regularly been assessing U.S. imports from Saudi Arabia here on the blog, given that production cuts should be reflecting through into lower flows. Imports in January reached nearly a three-year high, as the leading exporter from OPEC ramped up crude exports at the end of last year ahead of the January production cut. 

Imports remained strong through May, averaging over 1.2 million barrels per day for the first five months of the year. June imports then slipped, falling to their lowest since last November, before July imports have dropped even further. With just a few days left of the month, Saudi imports to the U.S. are down to their lowest since February 2015:

Saudi crude to US.jpgSaudi's change in tactics makes logical sense. The U.S. is not only the leading consumer of crude in the world, but has the most timely, transparent and reliable data available. As EIA data has been increasingly scrutinized for signs of a tightening global market, the lack of large crude inventory draws in June caused oil prices to drop to the lows for the year. 

However, a combination of slowing waterborne imports, ongoing strong refinery runs, and robust crude exports have now ushered crude inventories to drop to their lowest level since January. Inventory draws to the products as well amid robust exports (a recurring theme, me thinks) and stronger summer demand means total oil and product inventories have moved to a year-over-year deficit, for the first time since mid-2014:

oil and product inventories yoy.jpg

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We discussed Venezuela earlier in the week, and how possible sanctions could impact U.S. crude imports. It has been suggested that U.S. refiners are dialing back on Venezuelan crude to pare their exposure to potential supply losses.

While Venezuelan deliveries to the U.S. were extremely low last month, this was likely due to both timing, and a scramble for cash, as opposed to lower loadings from the troubled nation. 

While China is a leading destination for Venezuelan crude, given Venezuela's need to make oil-for-debt payments to service its $50 billion debt, the Latin American nation is also sending crude to India to raise cash. Funds are also replenished by sending barrels to the U.S., hence last month's blip in deliveries is being followed by a rebound.

Venezuela crude loadings.jpg

In light of Khalid Al-Falih's comments about focusing on exports to reconcile OPEC / NOPEC production cuts, we are offering a free trial of our global crude weekly - sign up here.  

About the Author

Matt Smith

deciphers and distills what is most relevant across the energy complex into cohesive and pithy knowledge you can use. The belly laugh is a bonus.

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