KSA curbs oil shipments to United States: Analyst

Dhaka,  Thu,  21 September 2017
Published : 15 Jul 2017, 21:41:27

KSA curbs oil shipments to United States: Analyst

LONDON, July 15 (Reuters): Saudi Arabia is trying to support oil prices by reducing its crude shipments to the United States (US) in a bid to cut the amount of oil in commercial storage.

US crude imports from Saudi Arabia averaged less than 900,000 barrels per day (bpd) in the four weeks ending on July 7, according to the US Energy Information Administration.

US imports from Saudi Arabia are running at the slowest rate since 2015, and the slowest for the time of year for over five years.

Imports from Saudi Arabia will fall even further to less than 800,000 bpd in August, according to a Saudi industry source familiar with the kingdom's oil policy.

"Saudi Arabia is keen to see an improvement in the oil market and accelerate the balancing process," the source told Reuters on Wednesday.

Saudi Arabia is cutting exports to all destinations but reducing shipments to the United States is especially important because US stocks are the most visible and have the biggest impact on prices.

The United States (US) accounts for more than 40 per cent of the commercial crude and product stocks held in the OECD and its stocks are reported weekly rather than monthly as in most other countries.

US crude and product stocks therefore receive disproportionate attention from oil traders and analysts, and can have a major impact on global oil prices.

Changes in US crude and products stocks are often (misleadingly) interpreted to reflect changes in the global supply-demand balance.

Saudi Arabia is the largest supplier of crude oil to the United States after Canada, providing an average of 1.1 million bpd to US refiners in 2016.

By restricting shipments, Saudi Arabia hopes to reduce US stocks and demonstrate to skeptical traders that the long-awaited rebalancing of the global market is finally underway.

The strategy seems to have had some early success with US crude stocks falling earlier and faster than normal so far in the second and third quarters of 2017.

US crude stocks have fallen by 40 million barrels since the end of March, compared with a drawdown of just 8 million barrels over the same period in 2016.

US crude stocks are now just 3 million barrels higher than at the same point in 2016, compared with 35 million barrels higher at the end of March.

Most of the drawdown in crude stocks is attributable to record refinery runs but slower imports likely played an important supporting role.

Senior officials from Saudi Arabia and the rest of OPEC are hoping US stocks will continue to decline rapidly through the rest of the summer driving season.

Saudi Arabia plans to use big stock draws to convince the oil market that rebalancing is happening and oil prices and calendar spreads need to rise.

The strategy has a fair chance of success but it could be threatened by rising US imports from other OPEC and non-OPEC members or a diversion of Saudi shipments from the United States to other markets.

While Saudi Arabia's crude shipments to the United States have fallen, Iraq's shipments have risen to their highest seasonal level in almost five years.
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