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Riyadh plans to purposely reduce exports to the United States to force a reduction in the latter’s sizeable inventories, which are preventing a greater rise in global oil prices, according to Saudi Oil Minister Khalid Al-Falih.
Just one day after OPEC announced a nine-month extension to its November production cut deal, the top oil official told reporters on Friday that “exports to the U.S. will drop measurably.” Two sources close to the matter told Bloomberg that starting next month, Saudi crude supplies to American importers will be reduced to below one million barrels a day next month – a 15 percent decrease from the monthly average so far in 2017.
The Organization of Petroleum Exporting Countries’ (OPEC) deal does not set limits on the amount any member country can export to its customers. This is why Saudi cargoes to the U.S. in recent months have totaled 1.21 million barrels a day – the highest rates since 2014, the year of the oil price crash. As the de facto leader and largest producer of OPEC, Saudi Arabia has cut its production the most of any member of the bloc. But stubbornly high fossil fuel inventories - which have been maintained worldwide, but are most readily measured in the U.S. due to open customs data – have prevented the measures from buttressing oil prices in a lasting way. Importer nations have opted to take advantage of low oil prices to stock up for the future.
The Energy Information Administration reports that American crude inventories have been on a downward trajectory in recent weeks, so the lower shipments may have a magnified impact as they are doled out.
Bloomberg also noted that Saudi Arabia generally has less oil to supply to the U.S. in summer months due to amplified domestic demand for cooling needs during the scorching desert summer.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…