By February 24, 2017 0 Comments Read More →

US crude oil imports from Saudi Arabia, Iraq recently increased, may decline soon

imports

Source: U.S. Energy Information Administration, Weekly Preliminary Crude Imports

Supply reductions pledged by Middle East producers disproportionately affected medium, sour crudes

US crude oil imports from Saudi Arabia and Iraq, two of the United States’ main sources for imported crude oil, have risen since reaching relatively low points in 2014 and 2015, according to the US Energy Information Administration.

On a combined basis, crude oil imports from these countries are the highest since late 2012.

However, recent market developments, including the Nov. 2016 agreement among certain members of OPEC to reduce production and the recent widening of price differences between Dubai/Oman crude oil and US-produced Mars crude oil, suggest that US imports from Saudi Arabia and Iraq are now becoming less attractive to US refiners.

In late 2016, high production in Saudi Arabia and Iraq, as well as seasonally low internal demand in Saudi Arabia, contributed to record crude oil exports from Iraq and near-record exports from Saudi Arabia, according to data from the Joint Organizations Data Initiative (JODI).

Saudi crude oil exports reached 8.3 million b/d in Nov. 2016, the highest level since May 2003, before declining to 8.0 million b/d in Dec.

Saudi exports generally increase from Aug. to Nov. as seasonal declines in domestic consumption increase availability of crude oil for export.

In Iraq, exports reached a record high of nearly 4.1 million b/d in Nov. 2016 and remained at that level in Dec. According to JODI data, Saudi and Iraqi production levels were relatively high prior to the pledged Jan. 2017 production cuts , with Dec. 2016 volumes up 321,000 b/d and 700,000 b/d, respectively, from their year-ago levels, creating an opportunity to increase exports.

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Source: U.S. Energy Information Administration, based on Joint Organizations Data Initiative

 Although crude oil exports from Saudi Arabia and Iraq increased in Nov. and Dec., transit times result in delays before these shipments arrive in the United States.

Shipments take about seven weeks to reach the US Gulf Coast from the Persian Gulf after traveling around the southern tip of Africa.

Using a smaller vessel capable of transiting the Suez Canal in Egypt, a voyage from the Persian Gulf to the US East Coast takes an estimated five weeks.

Traveling from the Persian Gulf to the US West Coast on a Trans-Pacific route requires about six weeks.

imports

Source: U.S. Energy Information Administration, based on Reuters Note: Click to enlarge.

Given transit times, cargos exported from Saudi Arabia and Iraq in Nov. and Dec. 2016 would be expected arrive in the United States between Dec. 2016 and Feb. 2017.

Imports from Saudi Arabia into the United States increased for five consecutive weeks, rising from 1.0 million b/d for the week ending January 6 to 1.3 million b/d for the week ending Feb. 10.

Similarly, US imports from Iraq grew for five consecutive weeks, increasing from 373,000 b/d for the week ending Dec. 9, 2016, to 723,000 b/d for the week ending Jan. 13, 2017.

The trend of increasing US imports from Saudi Arabia and Iraq seems unlikely to continue given recent market developments.

The price difference between Dubai/Oman medium, sour grade oil, which serves as a benchmark price for similar grades produced throughout the Middle East, and Mars, a US crude oil with similar properties, was relatively low during 2016.

imports

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For this reason, medium and heavy crude oils from Saudi Arabia and Iraq were relatively attractive to US refiners because they produced a profitable slate of finished products when processed in complex refineries.

After OPEC announced crude oil production cuts in late Nov. 2016, the relative price of Dubai/Oman crude oil rose because the supply reductions pledged by Middle East producers disproportionately affected medium, sour crudes.

In Jan. 2017, the price premium of Dubai/Oman over Mars reached its highest level in more than a year, likely encouraging US refiners to process more domestic medium, sour barrels while reducing imports of comparable grades from the Middle East.

 

Posted in: Energy News

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