Monday, 23 September 2019 | 14:09
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Saudi Arabia has been exporting more crude oil to China, less to the United States

Thursday, 25 July 2019 | 00:00

Saudi Arabia's crude oil production approached a four-year low in May 2019, averaging an estimated 9.9 million barrels per day (b/d), more than 1 million b/d lower than its all-time high in November 2018. Production in Saudi Arabia dropped following a December 2018 agreement by members of the Organization of the Petroleum Exporting Countries (OPEC) to cut crude oil production. Saudi Arabia's crude oil exports, especially to the United States, have also fallen. However, some countries—in particular, China—have increased their imports of crude oil from Saudi Arabia.

Four Asia-Pacific countries that publish crude oil imports by country of origin—China, Japan, South Korea, and Taiwan—collectively imported an average of 3.5 million b/d of crude oil from Saudi Arabia in 2018. China's, Japan's, and Taiwan's 2019 year-to-date crude oil imports from Saudi Arabia are larger than their 2018 annual averages, but South Korea's have declined slightly, based on data through May 2019.

Source: U.S. Energy Information Administration, Short-Term Energy Outlook (July 2019), Petroleum Supply Monthly, Weekly Petroleum Status Report; Joint Organizations Data Initiative (JODI); China's General Administration of Customs; Japan's Ministry of Economy, Trade, and Industry; Korea National Oil Corporation; Taiwan's Bureau of Energy; and Bloomberg L.P.

In contrast, U.S. crude oil imports from Saudi Arabia have declined year-to-date through April 2019 compared with the 2018 average by more than 0.2 million b/d, averaging 0.6 million b/d for the first four months of 2019. Weekly estimates through July 12 show continued declines, indicating that U.S. crude oil imports from Saudi Arabia averaged about 0.5 million b/d in May and in June.

These recent changes in crude oil trade patterns are partially a result of long-term structural trends within China and the United States and partially a result of recent oil market dynamics. From 2010 through 2018, EIA estimates that total Chinese petroleum consumption increased from 9.3 million b/d to 13.9 million b/d and that Chinese domestic production increased from 4.6 million b/d to 4.8 million b/d. As a result, China's need to meet incremental oil consumption has been met primarily by imports.

Source: U.S. Energy Information Administration, Petroleum Supply Monthly, and Weekly Petroleum Status Report; China's General Administration of Customs; Japan's Ministry of Economy, Trade, and Industry; Korea National Oil Corporation; Taiwan's Bureau of Energy; and Bloomberg L.P.

China's crude oil imports from Saudi Arabia have gradually increased in recent years, and in March 2019, reached 1.7 million b/d, the highest level for any month since at least 2004. Other countries, including Russia and Brazil, have been exporting more crude oil to China, however, and Russia surpassed Saudi Arabia as China's largest source of crude oil on an annual average basis in 2016.

U.S. crude oil imports, on the other hand, have steadily decreased as domestic crude oil production has increased. In addition, U.S. crude oil imports from OPEC members have declined following increases from other countries, especially Canada. Canadian crude oil can be a substitute for certain OPEC grades and can have lower transportation costs when shipped by available pipeline capacity.

Saudi Arabian crude oil exports to China increased recently, in part, because of the start-up of a new 0.4 million b/d refinery in Dalian, Liaoning Province, which has a supply agreement with Saudi Aramco, Saudi Arabia's national oil company. Saudi Aramco also has a supply agreement with a 0.4 million b/d refining and petrochemical complex in Zhejiang Province, which started trial operations this year.

Recent global oil supply issues could keep Saudi Arabian crude oil exports to China, Japan, South Korea, and Taiwan relatively high in the coming months. These four jurisdictions were all initially granted significant reduction exceptions (SREs) for Iranian crude oil imports through May 2019. However, because SREs were not renewed, each country will likely need an alternative to Iranian crude oil.

As a partial substitute for Iranian barrels, crude oil imports to these countries from Saudi Arabia could stay near first-quarter 2019 levels for the coming months. Saudi Arabia's support of maintaining current OPEC production cuts through March 2020, however, will likely reduce the Saudi Arabian crude oil available for export.

In addition, Saudi Arabia's seasonal increase in domestic crude oil consumption for power generation could reduce available crude oil export volumes this summer. The increase is dependent on the weather, but higher domestic consumption could be a more significant factor in determining the level of Saudi Arabian crude oil exports in the coming months.
Source: EIA

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