SAUDI ARABIA LOSING ITS IMPACT ON OIL MARKET

Saudi Arabia is trying hard to shake up crude-oil prices out of a downward spiral that threatens its economic-transformation plan including the Saudi Aramco IPO that the Kingdom would like to do when the barrel reach $60 to capture as much cash as possible.

Saudi Arabian crude export loadings in April had dropped significantly. Given the 6/7 weeks journey to the USA the expectation was that we would start to see lower volumes reflected in the June data. Imports of Saudi barrels into the U.S. so far this month have dropped below one million barrels per day. We can expect that trend to increase with lower US and Asian imports of Saudi crude.

Asian offtake dropping below the 4 million barrel-per-day mark is similar to November 2014. Just as we saw U.S. imports spiking in January as Saudi ramped up export loadings at the end of last year, we see exactly the same trend in Asian volumes. Imports popped over 5mn bpd in January, and stay around ~4.5mn bpd in recent months...

However, export loadings have picked up this month from a number of different countries (UAE, Iraq, Angola), while higher Libyan and Nigerian production is reflected through higher exports.

Saudi Arabia needs oil prices to rise from current levels of $45 a barrel to carry out plans to kick-start the kingdom’s economy through a public listing of its state oil company, Saudi Aramco. The Saudis are targeting $60 a barrel to help the initial public offering generate tens of billions of dollars, which would help in developing new technology and industrial sectors in Saudi Arabia.

However, since May oil prices are going downward, more than 16% in 4 weeks. OPEC, along with big producers like Russia is already withholding almost 2% of the world’s oil supply, but some OPEC members say more needs to be done to bring production in line with demand. In the meantime, Texas is drilling and there is a lot of excitement in the USA: “Drill baby Drill” as Mrs. Palin was used to say….

It is a difficult time for Saudi Arabia to attempt a bigger production cut. The Kingdom still burns crude oil to produce electricity and it needs even more crude in the summer, when air conditioning use soars.

U.S. oil producers took advantage of a price spike late last year after OPEC announced its cuts, and ramped up production. The resulting flood of new crude oil has convinced the Market that OPEC’s actions are not enough to re-balance the market. It looks like the US producers have more power these days that the Saudis.

Saudi Arabia has time to wait for oil prices to rise, with the IPO not scheduled until 2018. Publicly, Saudi Arabia, its allies and OPEC are preaching patience.

On Thursday, OPEC issued a news release touting its members compliance with their pledges to cut production. “The oil market is moving in the right direction,” the news release said. Privately, OPEC members’ worries are centered on two members who were exempted from the obligation to cut output: Libya and Nigeria. Both had their oil industries disrupted by civil unrest, but their production has come back in recent months. no consensus has emerged about Nigeria and Libya, which would both likely object to limits.

Nearly six months through the OPEC / NOPEC production cut, the results have been annihilated by the quick reaction of the US producers that were ready to immediately flood the market with new Oil.

What will be the reaction of OPEC and the Saudis as patience has its limits and even Texas producers would love to see $60 a barrel but is not for tomorrow….