Despite healthy demand in all regions, the world’s top crude oil exporter Saudi Arabia continues to keep its exports below the 7-million-bpd mark and will do so at least through September as it aims to tighten the market and drain down the oversupply, a Saudi official told Reuters on Thursday.
OPEC’s largest producer Saudi Arabia has kept its crude oil exports at below 7 million bpd for several months now, signaling in July that its July and August exports would continue to be lower than 7 million bpd, to “avoid excess stock building, particularly in oversupplied markets.”
For August and September, the Saudis will continue to restrain crude exports, hoping to drain the glut and lift oil prices that have taken a beating over the past week due to intensified concerns about global oil demand growth amid trade and currency wars.
“Demand was universally stronger, in all regions. But we kept exports below 7 million bpd,” the Saudi official told Reuters, commenting on Saudi Arabia’s strategy to tighten the market. Despite what the Saudis see as strong demand from all oil-consuming regions, they will continue to pump below 10 million bpd and export below 7 million bpd of Saudi oil, the official said. Related: Something Very Unusual Just Happened In Russian Oil & Gas
Deeper production cuts at Saudi Arabia, together with lower output at sanctions-hit Iran, and outages in Libya and Venezuela sent OPEC’s crude oil production in July falling to its lowest level since 2011, the monthly Reuters survey showed last week. The Saudis pumped 9.65 million bpd in July, after OPEC and its allies extended the production cuts into 2020 at the beginning of the month, according to the Reuters survey.
The Saudi efforts to tighten the market, however, have been hampered by weakening demand growth and the U.S. shale production growth.
In addition, the U.S.-China trade war and a looming currency war rattled oil markets in the past week, and prices dropped on Wednesday to their lowest levels since January this year. In view of the sliding oil prices, Saudi Arabia has contacted other oil producers to discuss a potential oil strategy response to the slumping price of oil, a Saudi official told Bloomberg on Thursday.
By Tsvetana Paraskova for Oilprice.com
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Whilst production cuts can in normal circumstances help absorb the glut particularly when the fundamentals of the global economy are positive, they are useless against a raging trade war.
Saudi Arabia-led OPEC and the global oil market are facing a crisis not of their own making. The problem is the escalating trade war between the US and China which is depressing global oil demand and oil prices and also augmenting an already existing glut in the market.
Only an end to the trade war could invigorate the global economy, stimulate the global demand for oil, absorb the glut in the market and push oil prices upwards.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London