According to recent reports by Bloomberg, Saudi Arabia is considering a substantial reduction in oil exports to the United States, which could result in a tightening of Western oil markets. The kingdom is planning to unilaterally decrease its crude production by 1 million barrels per day (bpd) in July, representing a significant 10% drop. This would bring Saudi Arabia’s total output to 9 million bpd, the lowest level since 2011.
Bloomberg estimates suggest that after the production cut, Saudi Arabia would have less than 6 million barrels available for export. As a consequence, Western countries, particularly Europe and the US, may experience a more pronounced impact on oil supplies compared to Asian markets, which remain the primary focus for Saudi Arabia.
It is anticipated that the majority of Saudi Arabia’s reduced exports will be directed toward its traditional Asian markets. The state-controlled oil giant, Saudi Aramco, has reportedly assured several Asian refiners that they will receive the requested amount of crude oil. Consequently, any cuts in exports are likely to be felt predominantly west of the Suez Canal, affecting Europe and the US. Saudi Aramco’s influence extends even further as it controls the largest refinery in the US, Motiva, with a capacity of 630,000 bpd, potentially allowing it to manipulate supplies to this facility in Port Arthur.
While the US has reduced its reliance on Saudi crude in recent years, Bloomberg suggests that this move presents an opportunity for Riyadh to exert some influence on global oil prices. By reducing exports to the US and tightening the market, Saudi Arabia aims to generate a noticeable impact reflected in inventory reports.
It is worth noting that the potential production cuts by Saudi Arabia could extend beyond July, as indicated by Saudi Energy Minister Prince Abdulaziz bin Salman. These cuts would add to the voluntary reductions already agreed upon between Riyadh and several large OPEC+ producers, including Russia, which were implemented in May. The collective effect of these cuts would lead to a daily reduction of approximately 1.66 million barrels until the end of 2023, bringing the total OPEC+ output reduction to 3.66 million barrels per day, or about 3.7% of global oil demand.
The potential cut in oil supply from Saudi Arabia to the US carries significant implications for global oil markets, particularly for Western countries heavily reliant on imports. By prioritizing its traditional Asian markets and potentially tightening supplies to the US, Riyadh aims to stimulate price increases and exert its influence on the global oil market. The impact on prices, supply chains, and energy security will need to be closely monitored in the coming months as the situation unfolds.
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