Updates
June 19, 2020: how Saudi Arabia caused the worst oil price crash in history; link here.
Later, 2:27 p.m. CT: see comments. Reader refers us to WSJ article regarding OPEC demand forecast:
The global oil market is slowly starting to rebalance thanks to production cuts and relaxing coronavirus lockdowns, but the industry is still swimming in excess supply, the Organization of the Petroleum Exporting Countries said Wednesday, June 17, 2020.
In its widely scrutinized monthly report, OPEC left unchanged its forecasts that the world’s demand for crude will fall by 9.1 million barrels a day in 2020 and plunge by 17.3 million barrels a day in the second quarter.
“Following an unprecedented and highly turbulent [first half of 2020] due to the enormous impact of COVID-19 on the global economy and oil market fundamentals, the dust is starting to settle,” the cartel said in its report.
The lifting of pandemic-motivated restrictions and monetary stimulus potentially amounting to a quarter of global gross domestic product will allow global growth to rebound in the second half of the year, and the oil sector with it, OPEC said.
Original Post
This is a very, very interesting analysis.
Graphics:
Bottom line: the Saudi attempt to flood the US with oil was successful; but Saudi's plan backfired.
Link here. The article in its entirety is also posted here.
After flooding the U.S. with crude earlier this year, Saudi Arabia has all but cut off the taps to the American oil market.
The kingdom has exported just one cargo to the U.S. so far in June, equivalent to about 133,000 barrels a day.
That’s about one-tenth of the 1.3 million barrels a day it shipped in April, when Riyadh flooded the global market during a brief price war against Russia.
If the low pace of exports is sustained in the second half of the month, U.S. imports of Saudi crude could drop to the lowest level in 35 years, helping the American crude market re-balance.
“Saudi oil arrivals will fall just as domestic refiners will start raising runs and domestic production continues to decline,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “U.S. refiners will have to import from elsewhere and run down stocks,” she added.
To be sure, several Saudi tankers haven’t yet indicated their final destinations, so the final tally into the U.S. could be a tad higher. Yet, the trend so far in June is unmistakable: the deluge of Saudi oil that threatened to overwhelm American refiners is dwindling.
Saudi oil industry officials, speaking privately, say the kingdom is unlikely to boost shipments into the U.S. in the second half of the month and into July. By slashing U.S. crude exports, the Saudis can influence the most highly visible oil market in the world as American customs data allow for near real-time monitoring of shipments. Less Saudi petroleum is likely to reduce the closely watched American crude stockpiles, amplifying the price impact.
The recent inundation of Saudi crude in the U.S. is largely the lingering effect of a price war earlier this year. For much of 2019 and early 2020, Saudi Arabia shipped relatively little crude into America, with average arrivals running at about 475,000 barrels a day, according to U.S. government data. But that changed in April, when Riyadh opened the taps after failing to reach an agreement with its OPEC+ partners to cut production.
Saudi crude takes about 45 days to reach the U.S. Gulf of Mexico and the U.S. West Coast, so the impact of the April export flood wasn’t felt until late May and early June, when U.S. imports of Saudi crude jumped to about 1.5 million barrels a day. As the Saudi tankers unloaded their cargo, U.S. crude stocks climbed to a record high, putting pressure on oil benchmarks.
In early April, once the devastation wrought by the coronavirus on oil demand became evident, the OPEC+ alliance set aside its differences, embarking on record output cuts. Riyadh cut oil shipments to the U.S. to 645,000 barrels a day in May, tanker-tracking data show. That drop would become apparent in the second half of June and early July as the vessels arrive on U.S. coasts.
The further export drop in the first half of June would become apparent in the second half of July. As of June 10, the U.S. had received almost 10 million barrels of Saudi crude, compared with 16.9 million barrels for all of June last year, according to U.S. Customs data by Bloomberg and figures from the Energy Information Administration.
This declining trend is set to continue.
Most American refiners nominated to take less supply than their respective contracted volumes for July loading. The development comes as the latest official selling prices for Saudi crude are now at the highest level since the kingdom’s price war with Russia in March. Record high domestic crude inventories may also have diminished interest. In addition to slashing U.S. shipments, the kingdom this month has curbed exports to China to about 1.3 million barrels a day through June 15, compared with almost 2 million on average in May. Exports to India and Japan have increased so far this month, however.
