On Monday, Bloomberg reported that Saudi Arabia may slash oil exports to the US in July, which will significantly tighten western markets.
Next month the kingdom has pledged to voluntarily and unilaterally cut its production of crude by one million barrels per day (bpd) which would equate to a drop of 10%. It will cut the total output of the nation to 9 million barrels per day, the lowest level seen since 2011.
According to Bloomberg’s estimates, Riyadh will have less than 6 million barrels for exporting after the production cut. Due to this, it is expected that the reduction will primarily hit exports to Western nations instead of shipments to Asia, which is the primary market for Saudi Arabian crude, according to the outlet.
The article said, “The bulk of that would go east of Suez, where Saudi Aramco, the state-controlled oil giant, has told several Asian refiners they would get as much crude as they requested. That means any cuts will be felt west of Suez: Europe and the US.”
If Riyadh choses to prioritize shipments to its primary Asian markets, that will reduce the exports available to the US, and force the market to tighten. The outlet noted it would likely show up rapidly in inventory reports.
Aramco’s Motiva refinery is the largest by capacity in the US, and that may influence supplies to the 630,000-bpd Port Arthur facility as well.
The outlet added that even though the US is less dependent on Saudi crude than it has been historically, this reduction is “probably the best chance Riyadh has to jump-start prices.”
Saudi Energy Minister Prince Abdulaziz bin Salman has now added that the kingdom could extend the production cuts beyond July. That would add these cuts to the already existent voluntary cuts agreed to in May between Riyadh and several other major OPEC producers, including Russia.
Those cuts, of 1.66 million barrels per day, which will be in effect until the end of 2023, were made in addition to previous agreements to reduce production output. In total this has reduced output by 3.66 million barrels per day, equivalent to 3.7% of global oil demand.
