The Shale Daily Update – 9.3.2020: Saudi Arabia Exports to the U.S. hit Record Low in August

WTI crested the $40/barrel mark again this morning. The last time that happened, it quickly began a decline back into the $36 range.
The oil pump, industrial equipment

What You Should Know About Oil & Gas Today

The Big Story

Ok, so, one of the big stories in the energy media this week has been about the much larger-than-expected drawdowns in domestic crude stocks over the past few weeks. A Reuters story on the subject yesterday carried this headline: “U.S. crude stocks drop nine million bbls, record fall in output amid hurricane – EIA”.

So, the EIA is attributing this past week’s big draw to the hurricanes, but what about the weeks prior to that? Well, the main factor behind those draws has nothing to do with the weather and everything to do with Saudi Arabia.

Remember back in April, when the Saudis flooded the U.S. market with an average of 1.3 million barrels of oil per day in exports? Remember how that flood of Saudi crude was a big contributor to the utter collapse in the price for West Texas Intermediate at the end of that month, causing that marker to actually turn negative on the final day of trading for the May contract?

Yeah, that was fun, wasn’t it?

Well, as World Oil reports, that’s all changed now, as the Saudis try to prop up crude prices both internationally and in the U.S. The Kingdom’s exports to their Motiva refinery and other refineries in the U.S. during August were their lowest in decades, averaging just 177,000 bopd during the month. This dramatic drop in Saudi exports coincided with the peak of this year’s admittedly smaller-than-usual summer driving season here in the U.S., when gasoline use is at its highest. Thus, the drop in domestic inventories should have come as no big surprise.

The energy news media has mostly missed this big factor impacting inventories in the U.S., but the fact is the Saudis have been transparent about their intentional strategy. In fact, they’ve been telegraphing it since at least June. On June 16, for example, the Detroit News carried a story that included this passage:

Saudi oil industry officials, speaking privately, say the kingdom is unlikely to boost shipments into the U.S. in the second half of the month and into July. By slashing U.S. crude exports, the Saudis can influence the most highly visible oil market in the world as American customs data allow for near real-time monitoring of shipments. Less Saudi petroleum is likely to reduce the closely watched American crude stockpiles, amplifying the price impact.

In fact, Saudi Arabia has long used changes in its export volumes to the U.S. as a means of influencing crude prices. Back in August of 2019, CNBC carried a story noting the paucity of Saudi exports to the U.S. at that time with this revealing passage:

Conveniently for the Saudis, there’s also no risk of losing the U.S. as a customer, thanks to its giant Aramco-owned Motiva refinery in Texas. Therefore, “Aramco is willing to increase or decrease to the U.S. based on its own needs,” says Ellen Wald, President of Transversal Consulting and author of the book “Saudi, Inc.”

With China, on the other hand, Aramco will meet customer demand when asked because it wants to maintain that relationship, she told CNBC in an email.

“In short,” she said, “Aramco is just fine increasing or decreasing its exports to the United States based on its own needs but in China it wants to fill demand based on the customers’ requests.”

So, when you see these reports of record draws or record builds in U.S. oil inventories, know that the story is always significantly more complicated than just the passage of a random hurricane.

Meanwhile, in other news…

Speaking of the Saudis, Saudi Aramco announced that it will delay major planned investments in petrochemical and LNG export facilities as a result of the hit it is taking from the COVID-19 pandemic. The LNG investment delay will impact Sempra Energy, with whom Saudi Aramco had announced a partnership earlier this year in a planned export facility in Port Arthur, Texas.

In another sign of the times we are in, French service company giant Schlumberger announced the sale of its U.S. hydraulic fracturing business to Liberty Oilfield Services (LOS). In the exchange, Schlumberger will receive a 37% interest in LOS’s stock.

Reporter Jim Magill has a good piece in the Midland Reporter Times detailing the efforts and technologies oil companies deploy every day to detect and reduce methane emissions. It is well worth the read.

Another great energy reporter, Sergio Chapa, has a strong piece in today’s Houston Chronicle detailing clean energy technologies being adopted by the big oilfield service companies. Sergio announced earlier this week that he will soon depart the Chronicle for a new gig with Bloomberg. He will be greatly missed at the Chronicle, but a terrific addition at Bloomberg, where we look forward to following him in the future.

That’s all for today.