Saudi Arabia has boosted oil sales this year, according to data from Joint Organization Data Initiative (JODI), a data-collecting organisation for oil exporters.
Saudi boosted January crude exports by 2% to 7.507 million barrels per day (bpd), with production up 450,000 bpd in February from October last year. OPEC produced 31.42 million barrels a day of crude in February, the most since October 2008, according to the International Energy Agency last week.
According to a report by Reuters last week, Vela, Saudi Arabia’s state oil tanker company, has booked at least nine very large crude carriers (VLCCs) capable of carrying 2 million barrels of crude each from the Middle East Gulf to the US since the start of March, the biggest such wave of fixtures in years.
The news bucks the trend of reporting – including here at Oil & Gas Middle East – that the drive for further supplies has been dominated by Asian consumers, which unlike the West still show strong rates of oil demand growth and have been assiduously courting Gulf States for more supplies.
According to American Petroleum Institute data released on Friday, US oil demand dropped 2.3% in February from a year earlier, to 18.426 million barrels a day. For the first two months of year, U.S. oil use is off 4.1%, at 18.219 million barrels a day. However, total US imports of crude have soared by 10.5% year-on-year to 8.85 million bpd.
And yet Reuters reports that US imports of Saudi oil hit 1.5 million bpd in the first 10 weeks of 2012, up 300,000 bpd from the fourth quarter of 2011 and marking the largest rise in shipments since the second quarter of 2003.
News that US deliveries are powering Saudi export growth despite weak demand has been discussed at the Financial Times’s Alphaville blog, channeling the work of Chris Cook:
One man has a theory. Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London, in a series of posts onNaked Capitalism, has discussed the idea that some of these “sales” may in fact be deliveries satisfying pre-paid transactions.
Neatly summed up, the idea is that these may be deliveries that were already sold to the market by intermediary banks in bilateral deals on behalf of producers back in the days of contango madness, completely off radar and off balance sheet. That the likes of Saudi received $$$ (or, interest-free loans) for the barrels long ago. That these “paper barrels” ended up flooding through the system, making the market think there was a lot more oil out there than there really was.
Now this “short” position taken on by the banks on behalf of the producers is starting to be covered. This time with real deliveries, since the positions can no longer be rolled forward for a profit by the banks.
Alphaville goes on to posit that by selling its oil forward after the 2008 price slump, Saudi smoothed its paper output levels to help consistently manage its budget. Oil in this way is called ‘dark inventory,’ as it sits off the balance sheets and core statistics available for public scrutiny.
A more straightforward explanation than a form of fiscal planning that Saudi has largely kept from markets lies with Motiva Enterprises, a joint venture containing three refining units between Shell and Aramco’s refining division. The Port Arthur refinery is set to more than double its capacity to 660,000bpd shortly, and will need a considerable store of feedstock to get up to capacity quickly.
Moreover, a wall of oil – 22 million barrels of it delivered in 11 VLCCs – should be enough to depress oil prices for the world’s largest oil consumer. Saudi oil minister Ali Al-Naimi has admitted concern about the deleterious effects of $125 a barrel oil, and a massive startegic injection of supply may be enough to move prices back towards Saudi’s official $100 target.
