Saudi Arabia's crude export record could be near-term peak
Singapore (Platts)--21May2015/237 am EDT/637 GMT
Saudi Arabia's recent push to maintain international oil market share
saw its oil exports surging in March, but the kingdom may find itself
unable to maintain much upward momentum in the coming months.
The latest official data from the Riyadh-headquartered Joint
Organizations Data Initiative or JODI, published Monday, May 18 showed
that Saudi crude exports rose by 548,000 b/d in March to 7.898 million
-- their highest level in over a decade.
However, March is the last month of the Arabian Peninsula's cooler
season, with maximum daytime temperatures in Riyadh still averaging
below 30 degrees Celsius.
Temperatures start to rise rapidly thereafter, with the daytime maximum
typically averaging 45 degrees Celsius by July, the hottest month of the
year.
As the mercury rises and demand for air conditioning soars, so does
Saudi Arabia's domestic oil consumption, as the kingdom burns
significant volumes of fuel oil and crude for power generation.
Since 2012, the winter-to-summer swing in domestic oil consumption has
run at around 1 million b/d, with direct crude burning accounting for
most of the difference, according to a study by the Oxford Institute and
US Energy Information Administration.
The seasonal fluctuation in domestic oil demand is most pronounced when
the Muslim Holy month of Ramadan falls during summer, as it does this
year, running from mid-June to mid-July.
YASREF REFINERY START-UP
Another reason why Saudi Arabia may have difficulty raising oil exports
further, or even maintaining them at the level reached in March, is that
its new 400,000 b/d Yasref refinery at Yanbu was still undergoing
commissioning at that time.
Although the first cargo of diesel from the Yasref refinery, which is
operated by a joint venture between state-owned Saudi Aramco and China's
Sinopec, was loaded in January, the refinery was not expected to operate
at full capacity until the second quarter, Jadwa Investment said in its
last quarterly oil market update, published in April.
As a result, crude uptake by Saudi refineries this year was forecast to
average 2.2 million b/d from Q2 onwards, up 100,000 b/d from Q1, the
Jadwa report said.
CRUDE OIL PRODUCTION
Since most of Saudi Arabia's products output, especially the gasoline
component, is sold domestically, that means the kingdom would have to
raise crude output further to keep oil exports flat.
Saudi oil minister Ali al-Naimi said in April that production was set to
continue at around the 10 million b/d level after reaching a new record
in March, implying that output is unlikely to rise further.
Naimi also recently stressed that Saudi Arabia has become the world's
most reliable oil supplier by investing vast sums in maintaining spare
production capacity, which he said the kingdom had repeatedly used to
balance the market during times of tight supply.
In its recently published 2014 annual review, Saudi Aramco said its
maximum sustainable oil production capacity would continue to be
maintained at 12 million b/d, implying target spare capacity of about 2
million b/d.
Monday's JODI data update confirmed that Saudi production did indeed set
a record in March, reaching 10.294 million b/d, squeezing spare capacity
to about 1.7 million b/d.
It is unlikely that Saudi Arabia would risk eroding its reputation for
reliability by allowing its spare capacity to tighten too much.
POLICY FOCUSED ON MARKET SHARE
March production also re-established Saudi Arabia at least temporarily
as the world's top oil producer, a position that was previously usurped
by Russia.
That was significant, as Russia in October 2014 had rejected Naimi's
call for major oil producers from outside OPEC to co-operate with OPEC
counterparts in proposed joint supply cuts aimed at preventing a major
price slide.
Subsequently, at the organization's November ministerial meeting, Naimi
steered OPEC towards a new policy of protecting market share, which
indeed intensified the decline in oil prices already underway.
For Saudi Arabia, the new strategy meant above all taking steps to
bolster its share of the Asian market and especially to reverse a dip in
exports to China.
A flurry of recent official visits by Naimi to Beijing and other Asian
capitals were preceded early this year by cuts in Saudi official selling
prices to Asia, which had the desired effect of driving up demand from
the region for Saudi oil.
However, OSPs have been raised twice since March, after the sudden surge
in Asian demand forced Saudi Arabia to impose volume restrictions,
mainly by limiting the amount by which term customers could receive over
their base allocations.
CHINA, INDIA LIFT IMPORTS
Plats C-Flow data showed 17 VLCCs, equating to about 34 million barrels,
arriving in China from Saudi Arabia in April, up from 15 in March and
nine in February.
India's crude oil imports from Saudi Arabia rose nearly 20% year on year
in April to 3.72 million mt (909,000 b/d). April imports were also up
14% from March imports of 3.27 million mt, the data showed.
This reflects the kingdom's March export peak, as many of the April
arrival cargoes would have been lifted in March.
Data for April for the other top Asian consumers -- Japan and South
Korea -- will be available in the next couple of weeks.
--Tamsin Carlisle,
tamsin.carlisle@platts.com
--Edited by Mriganka Jaipuriyar,
mriganka.jaipuriyar@platts.comand Wendy Wells,
wendy.wells@platts.com
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