The world's leading exporter of crude oil, Saudi Arabia, has cut its production and shipments for almost two years according to the OPEC agreement, in which, being the largest oil producer of the cartel , aims to give the example.
This year, the Saudis have curbed their exports – below 7 million barrels per day in recent months – to prevent another large overabundance of oil from weighing down on oil prices again.
In its reduced export levels, however, Saudi Arabia has dramatically reshuffled the priority destinations of its exports of crude oil, increasing sales in the main world oil importer – China – and cutting shipments to the United States, show ship location data, Chinese customs data and EIA estimates.
With the export volume and destination reshuffle, the Saudis try to kill two birds with one stone. One of the goals is to reduce oil exports to the most transparent market, the United States, so that the short-term goal of bringing global inventories down to adequate average levels, rebalancing the market and consequently – hopefully for the Saudis – support oil prices.
The other goal, in the longer term, is to increase sales of oil in China, which is not only the largest oil importer in the world, but also one of the notoriously opaque markets when it comes to oil inventories.
While the OPEC, EIA and market participants examine the reports and data on US and OECD oil inventories, the oil market cannot rely on China for transparent reporting of data from the US. Chinese inventory.
Saudi Arabia is therefore drying up the most transparent market, while gaining more market share in China, also taking advantage of US sanctions on Iran to increase sales of Saudi oil to the world's leading crude oil importer. Related: maize industry beaten by the shocking decision on ethanol
The shift in Saudi exports to the United States and China is also partly due to long-term structural changes: US oil production growth in the US and lower US imports, and continued growth in Chinese oil demand, the EIA He said in an analysis last month.
In recent months, however, it has been evident that Saudi oil sales to the United States have fallen sharply. The weekly EIA assessment of US imports from Saudi Arabia to exhibit that the United States is currently importing Saudi oil to the lowest levels since 2010.
US imports of Saudi oil in July 2019 have fallen 62% since August 2018, to only 262,053 bpd, according to data from TankerTrackers.com, as quoted by CNBC. At the same time, TankerTrackers.com estimates Saudi exports to China to just over 1.8 million bpd, or almost twice as much as Saudi sales in China in August 2018.
This estimate is just below the record of 1.89 million bpd of Chinese imports of Saudi oil in June, which jumped 64% compared to May and broke the previous record set in March of this year.
Tanker tracking data compiled by Bloomberg showed 1.74 million barrels a day of Saudi exports to China in July, while shipments observed in the United States turned out to be only 161,000 barrels, the lowest since Bloomberg began monitoring tanker shipments in January 2017. Related: Trump, OPEC jaw oil in opposite directions
While Saudi Arabia cuts exports to the United States, it is looking east to build a long-term relationship on the precious Asian oil market and to block the future demand for oil in the region which should show the only solid demand growth in the coming years and decades.
At the beginning of this year, the oil giant of the Kingdom, Saudi Aramco signed a joint venture agreement for a $ 10 billion fully integrated petrochemical and refining complex in China, which will be supplied with oil delivered by Saudi Arabia. This is just one of the agreements that Aramco recently signed in China and India to hold shares in the downstream sector in Asia, bound by long-term commitments to supply crude oil.
So it is not surprising that Saudi Arabia is trying to take advantage of the absence of Iranian irreverence from the Asian oil market at the moment, increasing sales in China. This long-term Saudi move is borne by exports to the West, particularly the United States, in the short term. Given the current state of the oil market, oil prices and oil inventories in the countries that report them transparently, Saudi Arabia is trying to cancel saturation at this time, laying the groundwork to increase its share of market in Asia and China.
By Tsvetana Paraskova for OilScore
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