Six years ago, in order to rework the market accounts for American buyers, Saudi Arabia started cutting down the US exports. Khalid Al-Falih, Saudi Energy Minister in the year 2017 stated that the exports to the US will drop sharply after an OPEC+ meeting, and by July, the exports to America had reduced to a 30-year low
Saudi Arabia, when it needs to persuade the world that the oil market supply is hardening by putting pressure on prices, nothing even comes close to the way it reduces the crude oil exports to the United States. Saudi has decided to cut its oil production by 10 percent. This decision would reduce oil production output to just 9 million barrels in a day, which is the lowest level since 2011.
The United States and Europe will be the regions most affected by the unilateral cuts. According to Bloomberg reports, the reduction would be a clear message to traders especially in the US. The variations in oil stockpiles and American crude imports have had a huge impact as Washington publishes the data weekly. When we look at other regions, traders get the official data on a monthly basis or maybe not at all as we see in India and China.
A Strategic Move
Six years ago, in order to rework the market accounts for American buyers, Saudi Arabia started cutting down the US exports. Khalid Al-Falih, Saudi Energy Minister in the year 2017 stated that the exports to the US will drop sharply after an OPEC+ meeting, and by July, the exports to America had reduced to a 30-year low. Till the end of that year after the minister’s statements, the price of West Texas Intermediate rose 20%. Since then the US imports of Saudi crude oil had significantly reduced.
If this tactic will have its effect again or not is something yet to be seen. And there are many reasons for it. The US is less dependent on Saudi crude compared to earlier. In 2017, the US used bought 1 million barrels a day regularly of the crude, and now the rate had gone down to less than 500,000 barrels a day.
Despite the demand for Saudi crude, the oil from Iran, Russia, and Venezuela has immense consumption. And because of this, West Texas Intermediate had struggled to keep the $70-a-barrel level. All in all, this could be the best time for Riyadh to jump-start the prices.
The US and European markets have a disadvantage over the Asian markets as they cant switch to Russia or Iran for supplies. This could be an added advantage to Riyadh.
KSA would have less than 6 million barrels for export after the production cut. The majority of that would go to Suez and Aramco had also promised the Asian markets that it would receive as much crude as they requested which implies the cut will be felt for Europe and US.
Aramco controls Motiva, which is the largest refinery in America and has the capacity to process 630,000 barrels a day. Among the 45% of the Saudi crude the US imported in the first quarter accounted for Motvia’s Port Arthur, Texas. According to government data, nearly 182,000 barrels a day were accounted for Motvia’s Port Arthur.
If this continues, Saudi crude oil flows into the United States of America will slip during the months of August and September. The number of shipments could reach near zero in some weeks during the period. Prince Abdulaziz bin Salman, who replaced Al-Falih as Saudi energy minister has kept the market in the dark so far regarding where the oil production cuts would be affected. Oil traders would have to wait and see the unraveling events to know the rest of the story.