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Why The U.S. Is Suddenly Buying A Lot More Saudi Oil

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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.


10 Comments on "Why The U.S. Is Suddenly Buying A Lot More Saudi Oil"

  1. rockman on Tue, 11th Sep 2018 12:54 pm 

    As oil prices increase it seems to make sense for the KSA to increase exports to the US: our economy appears to handle higher prices better then that of any other major oil importing nation. IOW you market your commodity to the buyers better able to handle higher prices. The article seems to want to take simple economics and make it more complicated.

  2. print baby print on Wed, 12th Sep 2018 12:47 am 

    I thouht usa is net oil exporter hahahhaha

  3. Davy on Wed, 12th Sep 2018 8:59 am 

    Hints of demand destruction?

    “OPEC Warns Of Slowing Oil Demand Amid Growing Risks To Global Economy”

    “Amid fears of global oil supply disruption and production curbs, in its latest monthly report, OPEC expects global oil supplies to remain stable, while cautioning that demand is becoming a growing concern. In the latest report, OPEC said that preliminary data suggested that the global oil supply increased 490,000 barrels a day to average 98.9 mb/d in August, compared with the previous month. OPEC projects that in 2018, non-OPEC oil supply will grow by 2.02 mmb/d despite making a downward revision of 64,000 b/d from its last report. In 2019, non-OPEC oil supply is expected to grow by another 2.15 mb/d, an upward revision of 17,000 b/d. Meanwhile, OPEC’s supply is also rising. According to secondary sources total crude oil production by OPEC members averaged 32.56 mb/d in August, an increase of 278,000 b/d over the previous month. As shown in the table below, oil output increased mostly in Libya, Iraq and Nigeria, while production declined in Iran, which is due to be hit with sanctions on its oil industry from November onwards, Venezuela, which is experiencing economic and political upheavals depressing production, and Algeria.”

    “What is becoming a growing demand-side concern to the oil market are fears that punitive U.S. tariffs on Chinese imports could weaken demand the country’s demand for oil. Looking at the global oil trade, OPEC noted that while China’s crude oil imports dropped in July by 70,000 barrels a day from the previous month to average 8.62 mb/d, based on an annual comparison, China’s crude imports were still higher by 420,000 b/d in August, or 5 percent higher from a year ago. As a result, demand for oil from the 15-member producing group OPEC is expected to fall the rest of 2018 and into 2019, OPEC said. In 2018, demand for OPEC crude is expected at 32.9 million barrels a day (mb/d), which is 500,000 barrels a day lower than in the previous year, the organization said.”

  4. Davy on Wed, 12th Sep 2018 9:14 am 

    More hints of demand destruction

    “ECB To Cut Euro Area Growth Outlook In Latest Global Slowdown Warning”

    “One week ago, Bank of America’s CIO Michael Hartnett predicted that Europe will be the “missing link” for the emerging market crisis to spread to the rest of the developed world and “morph into a global deleveraging event.” But where would the crack appear: after all, until recently European economic data had been surprisingly strong… if not so much in the past few days, because after emerging into the green, the Citi Eurozone economic surprise index appears to have rolled over, and returned back into negative territory. Then, as if to confirm that Europe was finally starting to groan under the weight of EM turmoil, overnight Bloomberg reported that the ECB was set to revise its forecasts lower for euro-area economic growth during its press conference on Thursday “as global trade tensions damp external demand, according to officials familiar with the latest projections.” According to Bloomberg’s sources, the main nations dragging on demand were the U.K. and Turkey, though the U.S. outlook is still positive. In June, the ECB predicted economic growth would slow from 2.1 percent this year to 1.7 percent in 2020, with inflation averaging 1.7 percent in all three years covered in the forecast.”

  5. rockman on Wed, 12th Sep 2018 6:52 pm 

    print baby – They key to understanding the true dynamic is to not just to focus on CRUDE OIL volumes is to also look at the export of refinery products. A huge volume of our oil is not consumed by our consumers but refined with those products exported to overseas consumers. Essentially a significant volume of US oil “consumption” is not burned in the US but overseas.

  6. print baby print on Thu, 13th Sep 2018 12:48 am 

    Refinery products come from CRUDE OIL. If you import crude oil you are not oil independent. It Doesnt matter how much , gasoline or ,chemicals or plastic you export

  7. makati1 on Thu, 13th Sep 2018 1:54 am 

    PBP, you are correct. The US economy depends on those exports. Whether the import is oil, iron ore, wood, etc., if it is used to make exports it is a necessity for the US economy. To say different is pure denial of reality. Many here do not understand that fact, or do understand and still deny.

  8. makati1 on Thu, 13th Sep 2018 1:58 am 

    rockman, the same argument can be said for the oil embedded products imported from Asia. About a trillion dollars worth every year. A lot of oil in that cargo.

    “While the U.S. runs a sizable trade surplus in services (more than $230 billion last year), it’s dwarfed by the $771 billion trade deficit in goods: U.S. goods exports amounted to more than $1.6 trillion last year, but the country imported nearly $2.4 trillion worth of goods.May 18, 2015”

  9. rockman on Fri, 14th Sep 2018 12:50 pm 

    Mak – So true. A good bit of US salaries (as well as taxes and stock dividends)are paid indirectly by them damn “furners”.

  10. Boat on Fri, 14th Sep 2018 8:09 pm 

    In the case of oil, the US eats that pollution while refining those imports to create those exports. When you say US refining, 30 % of that capacity is foreigner owned including the Saudi who happens to own the largest refinery, 600,000 bod. Let’s not forget the Venz and BP.

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