In Oil & Companies News 20/07/2016
Saudi Arabia has been steadily drawing down its record-high oil stockpiles this year as the kingdom wrestles with soaring domestic demand while trying to maintain exports.
The world’s top exporter of crude oil drew its storage levels down in May to the lowest level since August 2014, according to the Joint Organisations Data Initiative, a group based in Riyadh that compiles oil industry information. The country’s crude inventories fell 12% since October to 289 million barrels in the longest sustained drawdown in 15 years.
The moves suggest Saudi Arabia is performing a delicate balancing act at a sensitive time for the oil market, said analysts of the kingdom’s oil industry.
It doesn’t want to ramp up production past its record, more than 10.5 million barrels a day set in June 2015, to meet peak local demand during the scorching summer. Such an increase might signal to investors that there is no end in sight for a global glut of crude that helped sink oil prices to 13-year lows during the winter.
Saudi Arabia’s production has remained steady since August 2015, hovering between 10.14 million barrels a day and 10.28 million after a significant ramping up in early 2015.
But Saudi Arabia also has to keep output flowing as it competes for its share of the export market with a host of rivals. They include an Iran now resurgent after the end to sanctions, a Russia pumping near record levels and a U.S. that began selling crude abroad for the first time in 40 years.
According to JODI data, Saudi Arabia exported almost 7.3 million barrels of crude oil a day in May, up more than 5% from May 2015.
“If Saudi Arabia had not been drawing stocks, it would have had to reduce exports at a time when Iran was increasing exports,“ said Olivier Jakob, an analyst at Switzerland-based energy consultancy Petromatrix.
A Saudi industry official familiar with the matter said the Gulf producer is likely to continue to use its stockpiles rather than raise output to meet the peak summer demand. Saudi Arabia burns crude to generate much of its electricity. Local energy demand has consumed an increasing part of the country’s crude production in recent years, rising to 25% of total output in 2015.
Saudi Arabia hasn’t significantly drawn down its oil inventories since 2011, when it ramped up exports to cushion the market after Libyan production plunged after the ouster and death of dictator Moammar Gadhafi.
The kingdom is still grappling with its new role in a world where it and the 14-nation cartel it leads, the Organization of the Petroleum Exporting Countries, no longer have the same power over the oil market. The rise of American production via shale producers has made the Saudis’ production increases and cuts less effective at keeping prices at desirable levels.
Crude prices are up about 80% this year, trading at about $47 a barrel on Tuesday in London. Those prices are still down more than half from 2014, and Saudi Energy Minister Khalid al-Falih has said prices need to be between $50 and $100 to support investment.
Mr. Falih said Saudi Arabia still has a role to play in balancing the crude market.
“The focus of attention remains on countries such as Saudi Arabia which, due to its strategic importance, will be expected to balance supply and demand once market conditions recover,“ he said in June.
Some analysts said the Saudi oil-stocks policy is now aimed not at prices but at maintaining production at a steady level of around 10.2 million barrels a day, a high level that would be costly to exceed.
The kingdom has an official production capacity of about 12.5 million barrels a day, but it has never reached that figure and would only do so in case of an emergency, such as a global supply shortage.
“The effective cap on Saudi production is 10.5 million barrels a day,” said Yasser Elguindi, an oil market analyst at Medley Global Advisors, a financial consultancy.
