Posted on 08/26/2014 12:22:14 PM PDT by thackney
Since about 2009 and until just recently, Saudi Arabia shipped discounted crude to the U.S. in growing volumes even as total U.S. waterborne imports fell. But while Saudi Arabia isn’t about to exit the U.S. market, cheaper domestic crude oils are beginning to displace Saudi imports.
Daily U.S. crude imports fell from 11.8 million barrels in 2010 to 9.8 million barrels in 2013. Over roughly the same period, U.S. daily oil imports from Saudi Arabia rose from an annual average of just under 1.1 million barrels to about 1.5 million barrels, according to data from the U.S. Energy Information Administration.
In a bid to keep its shipments to the U.S. relatively constant, Saudi Arabia’s state-owned producing company, Saudi Arabian Oil Company or Saudi Aramco, has at times offloaded its oil in the U.S. for less than it could get in other world markets, said John Auers, an analyst and executive vice president with Dallas’ Turner Mason & Co.
Auers said Saudi Aramco sometimes has sold to the U.S. at double-digit discounts relative to prices on other markets. Supply disruptions within some other members of the Organization of the Petroleum Exporting Countries also have helped the Saudis maintain market share in the U.S.
Most of that discounted oil finds its way to the refineries of the Gulf Coast, where Saudi Aramco has partnerships and interests with refiners.
The discount has leveled off in the past few months, however, as Saudi imports dipped along with other waterborne crude shipments. Saudi imports fell from an April 2014 high of 1.6 million to around 1.2 million barrels per day in May, according to the Energy Information Administration.
Auers estimated the July imports from Saudi Arabia were around 1 million barrels a day, and are likely to fall further.
“The question is to what extent is that,” Auers said. “I don’t believe (Saudi imports) are going to be the 1.5 million barrels a day they’ve been supplying,” Auers said. “It’s not going to go down to zero, but is it going to be 200,000, 500,000, or 800,000?”
Auers wonders if the Saudis are moving away from the discounted oil sales to the United States, but said he doesn’t expect any big change in how they sell their oil in the U.S.
“Their strategy has always been to develop markets in different places. They’re a very disciplined, long-term player,” Auers said. “They’re not having to discount very much today. Going forward they’ll have to discount. I think $5 is something they can live with.”
A series of partnerships and long-term contracts will help insulate Saudi Arabia’s market share somewhat if if oil prices fall.
For example, Saudi Aramco owns half of Houston-based refining company Motiva Enterprises and will likely keep sending its crude oil to refineries equipped to handle the range of crude that comes from Saudi fields.
By sending their crude to a refinery in which they own an interest, the Saudis would make up for a price discount through a larger refining margin, said Philip Verleger, an economist and president of PKVerleger LLC.
In addition, Verleger said that pricing for the oil markets isn’t as structured as it may seem. If the Saudis began selling oil in Asia that previously would have gone to the U.S., prices in Asia may fall and the Saudi’s would end up with a similar discount in that market.
Saudi Aramco has taken steps to insulate its exports from fluctuating prices, Verleger said, and changes would be made gradually.
“One of the things that the Saudis have done very carefully is to make sure that their crude is not bought and sold on the spot market at the end of the day,” he said. “The volumes are fluctuating, but the Saudis are not going to walk out of the market. They’re going to keep sending a large chunk of oil to the Gulf Coast.”
???
They just did a better job of keeping their enemies even closer. At least if they are gone, the mask comes off.
It will be interesting...
Two days ago gas was $3.09/gl. Today $3.25. ???
There was a poll in Saudi that showed a 92% popularity of ISIS among its population. It was reported on FR, yesterday.
ISIS is sunni, Saudi is sunni with the exception of the Eastern Province which is shia. The Eastern province is where the oil (Dhahran) and chemical (Jubail) industries reside.
Personally, I was not surprised when I read the news.
Thanks
Around $3.99 to $4.05 here in the PNW.
In WA, yeah.
Thanks for the info.
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