As Saudi Arabia limits U.S. crude shipments, Iraq steps in

NEW YORK– 12 November 2017: Saudi Arabia’s efforts to reduce a worldwide crude supply glut by cutting shipments to the United States means others are now filling in, most notably Iraq, in a trend that is set to accelerate in coming months.

Over the summer, normally one of the busiest periods for crude shipments, U.S. imports of crude from Iraq rose by 41 percent from a year ago, while similar shipments from Saudi Arabia have dropped by 22 percent.

That trend has continued, with ClipperData showing Iraqi shipments to the nation’s largest refinery in October surpassed Saudi Arabia’s for the first time in more than 30 years.

It shows how Saudi Arabia’s leading role in reducing world supply has also cost it market share in the world’s largest oil consumer, as its share of U.S. imports has fallen to the lowest level since 1985. Imports have increased from OPEC members Iraq and Nigeria, along with Canada, and refiners are relying more on rising U.S. shale production.

“For every barrel (the Saudis) don’t produce they’re losing market share,” said Sandy Fielden, director of research, commodities and energy at Morningstar. “Refiners go to an alternate in that situation and obviously the Iraqis took advantage.”

Saudi Arabia cut shipments to the United States beginning in June, as part of the ongoing effort by the Organization of Petroleum Exporting Countries to cut supply. OPEC, along with non-member nations including Russia, agreed in late 2016 to cut world output by 1.8 million barrels a day. Representatives of OPEC countries will meet at the end of the month to consider extending cuts.

Between June and August of this year, according to U.S. Energy Information Administration data, Iraq exported an average of 600,000 barrels of oil daily to the United States, compared with 426,600 bpd a year ago. Saudi Arabia’s shipments dropped to an average of 850,000 a day from 1.09 million bpd last year, according to U.S. energy data. At its peak in 1991, Saudi Arabia supplied the United States with 29 percent of its crude.

Shipments from Iraq to Motiva Enterprises LLC’s Port Arthur, Texas refinery are up by almost 35 percent in the six months through October, according to Matt Smith, director of commodity research at ClipperData.

The Texas refinery, the largest in the United States and owned by Saudi Aramco, did not respond to a request for comment.

“For October, we’ve seen that Iraqi crude deliveries have surpassed Saudi deliveries for the first time since 1985,” Smith said. Official U.S. data on refiner-level imports currently only extends through August.

Those cuts to U.S. supply are set to accelerate; on Thursday, the Saudi Arabian energy ministry told Reuters that December crude exports to the United States will be more than 10 percent lower than November levels.

Reduced supply has helped raised crude prices, with Brent crossing $64 a barrel last week, a two-and-a-half-year high.

While Saudi Arabia has decreased exports to the U.S. Gulf 16 percent, exports to the West Coast fell just 8 percent from last summer, as the Saudis face competition from producers in Latin America.

Saudi Arabia “cut imports to Motiva, while they cut less to the others,” said Fareed Mohamedi, chief economist at Maryland-based Rapidan Energy Group. “They’re willing to sacrifice to themselves, but their refinery went out to buy other crude which also helped tighten up the market.”

Even if Saudi imports remained at that summer average of 850,000 barrels a day, that would equal just 11 percent of overall U.S. crude imports, the lowest percentage since 1985, according to EIA data.

In addition, U.S. production has risen by 430,000 bpd this year through August, EIA data shows. Fielden said while the shale threat means OPEC will extend production cuts, the shipping figures suggest disagreement on supply to the United States.

“This example between Iraq and Saudi is, I think, destined to be an ongoing situation,” he said.

“In a situation where some of the members of OPEC are not exactly best friends, that complicates amicable agreements about market share.”