Why Saudi Arabia oil export to US got cut? One of the largest oil nations intends to eliminate the global oil glut by reducing the oil shipments to the US. Will it work?
17 July, AtoZForex – Saudi Arabia is reducing the supply of oil to the US in an attempt to maintain the prices. How is it going to be reflected on stocks?
Saudi Arabia oil export to US
As the largest supplier of crude oil to the US and Canada, Saudi Arabia provided to US refiners on average 1.1 mn bpd in 2016. But nowadays, the Saudi Arabia oil export to US is running at the lowest rate since 2015. In July, the four-weeks number averaged in less than 900,000 bpd, according to the US Energy Information Administration (EIA). It is anticipated that in August the imports will decline even further, not reaching 800,000 bpd.
The US accumulates over 40% of the commercial crude and product stocks possessed by the OECD. Due to a high influence, it is exercising over global oil prices. Hence, the US crude and product stocks are subject to excessive attention from the side of traders and analysts. The stock prices are reported weekly and not monthly as in the majority of other countries.
Nevertheless, it is misleading to associate the changes in US crude and product stocks with global demand and supply relation. As a rule, alterations are most likely to be attributed to either record refinery rates or imports.
Saudi Arabia oil strategy
Saudi Arabia is willing to see an improvement in the oil market. The oil nation demonstrates that oil prices need to rise. The restriction on shipment of oil to the US signals that long-awaited rebalancing of the global market is on the way. The strategy was successful previously when in the Q2 and Q3 of 2017 the US stocks fell faster than normal. The expectations hold that US stocks will continue to decline throughout the rest of summer season.
However, the strategy of Saudi Arabia can be undermined by imports from other OPEC and non-OPEC members and shipments from the US to other markets. Today, Iraq’s shipments appeared to be the highest for the last five years, which is accompanied by the rise of Opec output from Nigeria and Libya. All of this leads to a sharp decline of compliance with OPEC’s production agreement putting a quota on the supplies of oil. Ultimately, this can lead to a vain effort to undercut oil supply planned by Saudi Arabia.
The question still remains what happens to stocks after the summer season comes to an end. But for now, the traders are interpreting a draw in US crude stocks as a signal of market rebalancing and an increase of the prices.
This article was written by Lizaveta Mazurina. If you like the article, please share it.
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