Saudi Arabia continues to lead the charge in terms of the OPEC production cut deal - not only by keeping exports in check, but also by clearly communicating its next steps. By following through on its rhetoric, it has brought some much-needed credibility to the production cut deal - despite a lack of commitment from some other members.
These efforts by Saudi Arabia can be clearly seen in U.S. crude imports of OPEC crude. Deliveries in July dropped below year-ago levels for the first time since late 2015, and absolute volumes have continued to drop in the two months since. Part of this drop relates to hurricane activity on the U.S. Gulf Coast reining in refinery operations...but some is a conscious effort:
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Much of this descent has been led by Saudi Arabia, whose deliveries averaged just over 700,000 bpd in Q3, after averaging 1.1 million bpd in Q2, and nearly 1.3 million bpd in Q1. Iraqi crude arrivals peaked in Q2 at nearly 700,000 bpd, but dropped last quarter. Nonetheless, Iraqi crude flows to the U.S. so far this year are still up over 40 percent versus year-ago levels.
As refining activity on the U.S. Gulf Coast gradually returns to normal after hurricanes Harvey and Nate, Iraqi flows are set to see a return to form, Saudi less so.
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As Saudi Arabia dials back its crude exports, flows have dropped to various key demand regions, not just the U.S. We can see in our ClipperData that Saudi flows into China have also dropped. Countering this drop, we have seen an increase in deliveries from all manner of places, from West Africa to Latin America. But we have also seen an increase from Saudi's cartel comrades, Iran and Iraq. Related: Oil Prices Poised To Rise In Early 2018
Iran is not part of the OPEC production cut deal, hence is under no obligation to curtail its output. As for Iraq, it seemingly carries on regardless: footloose and fancy free.
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By Matt Smith
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