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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Oil Prices Rise As Saudi Arabia Attacks The Glut

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:

(Click to enlarge)

Saudi'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: Related: The Next Big Catalyst In The U.S. Oil Export Boom



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. Related: Oil Rises, But Saudis Face Daunting Dilemma

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.

(Click to enlarge)

By Matt Smith

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