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Exports of OPEC members seem to have further declined in
February, with the overall change month-on-month remaining around
-6.7%, like what we saw a month before. The interesting thing to
observe is that the second half of the month turned to be much more
active than the first half in terms of loadings. This resulted in
the month-on-month change in terms of million barrels per day
turning positive, surpassing 3%, for the first time since August
2018. But this didn't mean a significant change in the market's
sentiment, at least for now. February's levels still stand around
10% lower year-on-year.
Focusing on Saudi Arabia, the country's crude oil exports to the
US have fallen sharply since October 2018, but with February's
volumes recovering significantly after the dramatic decline in
January, which was driven by Saudi Arabia's decision to cut its
production by more than agreed at December's OPEC+ meeting. This
supported oil prices to an extent, but meanwhile the increased US
production sets an obstacle that can't be ignored. For refiners in
the US West Coast, there aren't many options for suppliers, which
allows us to expect flows from Saudi Arabia not to decline further,
at least for long.
But there is another trend developing in the Saudi Arabia flows
that we should highlight. The Kingdom has been reporting much
higher shipments to China during the last couple of months, with
the trend expected to further develop in the near-term. Saudi
Arabia oil heading to China is set to increase further this year.
Last year, Saudi Arabia exported less than 1 million bpd to China,
but Saudi Arabia's aggressiveness seems to match with China's
thirst for more crude. Flows averaged 1.02 million bpd in January
and reached to 1.27 Mn bpd in February. If this trend lasts, this
could rise to 1.5 million bpd in March. This would allow Saudi
Arabia to get positioned better for the long-term, as China, unlike
the United States, relies on imports to satisfy demand, having no
abundant local production capacity.
Saudi Arabia oil exports are expected to remain low and
potentially drop further, as the Kingdom will proceed with
production cuts of half a million barrels daily more than their
quota.
The growth observed in flows from Saudi Arabia to China has been
supported by the rising demand across major Chinese buyers.
State-owned Aramco seems to be rather determined to expand its
market share in China by finalizing deals with new and independent
refiners, after years of focusing almost exclusively on state-owned
entities.
Saudi Arabia hasn't been the biggest source of crude oil for
China for the past three years, since Russia surpassed the Kingdom
as the top crude supplier to China. This was driven by a new
pipeline which allowed Chinese private refiners ("teapots") to
absorb more Russian oil. But Aramco now looks much more aggressive,
having quickly moved to seal long-term supply deals targeting to
become China's primary supplier once again.
Posted 07 March 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit