For a few months now, OPEC has been boosting production to ease concerns about high oil prices amid expected supply losses from Venezuela and Iran.
The cartel’s largest producer and exporter, Saudi Arabia, has been specifically targeting an increase in crude oil exports to the most transparent market, the United States, which reports crude oil imports and inventory levels every week.
On the one hand, the Saudis are looking to regain their foothold in the American market after having cut shipments to the United States to a 30-year-low at the end of last year, when OPEC’s efforts to erase the global oil glut were in full swing.
On the other hand, the Saudis are responding to the demands of their staunch ally U.S. President Donald Trump, who has repeatedly slammed OPEC for the high gasoline prices, urging the cartel in early July to “REDUCE PRICING NOW!”
In the week to August 31, the four-week average of U.S. crude oil imports from Saudi Arabia exceeded 1 million bpd for the first time since June 2017, data by the EIA showed.
At that time last year, Saudi Arabia started to purposefully reduce its exports to the United States, where inventory data and refinery runs are reported every week. Those reports influence the price of oil and investor sentiment.
In the last week of October 2017, the four-week average of U.S. imports from Saudi Arabia was just 506,000 bpd—almost half of the four-week average of 1.009 million bpd for the last week of August this year.
In October 2017, U.S. imports from Saudi Arabia stood at 582,000 bpd—the lowest level since November 1987, as OPEC’s leader, its fellow OPEC members, and Russia-led non-OPEC allies part of the production cut pact were working to drain the global oil glut that weighed on oil prices and on the incomes of oil producing countries.
In the spring of this year, it became evident that OPEC and friends achieved their mission to draw global inventories down to the five-year average. The oil market tightened, but OPEC’s leader Saudi Arabia was still vowing to continue with the production cut pact at least until the end of this year.
However, the U.S. announced the return of sanctions on Iran, including on its oil, Venezuela’s production continued to plunge by around 40,000 bpd-50,000 bpd every month, outages in Libya and Nigeria continued, and Brent Crude prices hit $80 a barrel in May.
Consumers and large oil-importing nations started to express concern about the high oil prices, and analysts started to question whether $80 oil was the beginning of demand destruction. President Trump stormed into the debate with several tweets aimed at OPEC and its price-fixing policies.
After OPEC and its allies decided in June that they would ease compliance rates, that is, boost production, U.S. imports from Saudi Arabia started to rise again, exceeding 1 million bpd at the end of last month. That has come at the expense of another Middle Eastern oil supplier, Iraq, whose crude oil exports to the United States have been dropping from the highs of more than 800,000 bpd in April this year, to less than a 400,000 bpd four-week average as of August 31.
The largest U.S. refinery, the 600,000-bpd Motiva refinery in Port Arthur, Texas, controlled by Saudi Aramco, has started to boost Saudi imports again. Last year it slashed Saudi oil intake and at one point was importing more Iraqi oil than Saudi crude, according to Bloomberg. But in recent months, Motiva has resumed buying more Saudi oil, EIA data reviewed by Bloomberg shows.
The low level of Middle East crude shipments to the United States has started to change, Gary R. Heminger, CEO at the second-largest refiner in the States, Marathon Petroleum Corporation, said in a conference presentation last week.
“The Middle East producers are becoming much more aggressive, wanting to bring their barrels back into this market this market is very important to them,” Heminger said.
Saudi Arabia’s crude shipments to the United States last month and this month are set to hit the highest two-month level since February and March 2017, according to trade flow data by Thomson Reuters. A total of 41.5 million barrels of Saudi oil is expected to arrive at the U.S. Gulf Coast and the West Coast until mid-October, with the West Coast imports at their highest since August 2013.
Saudi Arabia is resuming higher crude oil exports to the United States to achieve two goals: regain market share and keep a lid on oil prices and U.S. gas prices, at least until the mid-term elections in November.
By Tsvetana Paraskova for Oilprice.com
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.