Saudi Arabia has been slashing oil exports to the United States over the past two months, in what looks like a move to force a reduction in the world’s most transparently reported inventories that could put the Saudis on a collision course with U.S. President Donald Trump, who has repeatedly said that oil prices should be much lower.
The Saudis started to reduce shipments to the United States in September, and this month they are loading around 600,000 bpd on cargoes en route to the United States, down from more than 1 million bpd in July and August for example, CNBC reports, quoting figures from ClipperData.
According to ClipperData estimates, Saudi oil exports to the United States could soon reach their lowest levels on record.
The Saudi tactic to send reduced volumes to the States—which regularly reports every week crude oil inventories—succeeded last year.
Reduced Saudi oil imports tend to reflect in lower weekly U.S. inventories, while in the past weeks, crude builds have been weighing on oil prices, together with fears of an oversupplied global market and signs of slowing economic and oil demand growth.
“It worked so well in 2017 for [the Saudis] to cut flows to the U.S. because people could see the inventories dropping because U.S. data is so timely and transparent,” Matt Smith, head of commodities research at ClipperData, told CNBC.
Due to seasonally lower demand, Saudi Arabia will reduce its supply to the global markets by 500,000 bpd in December compared to November, Energy Minister Khalid al-Falih said this weekend. On Monday, al-Falih affirmed that OPEC will do ‘whatever it takes’ to balance the market, admitting that the cartel’s analysis shows that another cut of 1 million bpd may be required.
The comments from Saudi Arabia sent oil prices up early on Monday, before President Trump’s latest tweet aimed at OPEC—“Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!”—contributed to a 7-percent oil price plunge on Tuesday.
By Tsvetana Paraskova for Oilprice.com
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It is an established practice that the US uses claims by the US Energy Information Administration (EIA) about rising US oil production and a build-up in US crude and products inventories to exert pressure on oil prices. If this is the case, then Saudi Arabia is absolutely right to reduce its oil exports to the United States and concentrate on the more lucrative Asia-Pacific region particularly China.
If claims by the EIA about rising US oil production are true, then why does President Trump keep haranguing OPEC to raise production to keep prices down. Why doesn’t he use rising US oil production to flood the global oil market with oil and thus depress oil prices. It points to one thing: EIA’s claims are plain untruths.
The recent slump in oil prices is no more than a realization by the global oil market that US sanctions have so far failed to impact adversely on Iranian crude oil exports. This has not materialized. Furthermore, the issuing of sanction waivers to eight countries who didn’t need them in the first place and who would have continued to buy Iranian crude with or without waivers is the clearest admission by the United States that their zero option is out of reach and that sanctions are doomed to fail. Moreover, the eight recipients of the waivers have neither increased or decreased their purchases of Iranian crude as a result of the waivers.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London