Saudi Arabia is slashing its U.S. oil exports to a nearly three-decade low for this time of the year, intensifying its efforts to reduce a global supply glut that has been pummeling crude prices.
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State-owned Saudi Arabian Oil Co. expects sales to the U.S. will drop below one million barrels a day in June, then slide to about 850,000 barrels a day in July, according to people familiar with the matter. The July figure would be its lowest export total to the U.S. for that month since 1988, based on figures from the U.S. Energy Information Administration.
Saudi Aramco expects its August exports to the U.S. to decline by another 100,000 barrels a day, these people said, which would be the lowest export amount for that month since 2009.
The shift comes as crude markets test some of their lowest prices of the year. Oil traders have been questioning whether Saudi Arabia and other members in the Organization of the Petroleum Exporting Companies can change that. The group cut output this year in an effort to ease a longstanding glut, but U.S. companies have rushed to fill any void left by OPEC.
U.S. crude prices tumbled more than 9% over the past three weeks and are down about 13.5% this year, back near where they were before OPEC's deal was first announced in November.
On Tuesday, U.S. crude prices added 0.8% to $46.46 a barrel ahead of data on U.S. oil stockpiles due to be released Wednesday. Global benchmark Brent rose 0.9% to $48.72.
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Some say Saudi Arabia's decline in exports to the U.S. is a direct effort to ensure OPEC's cuts have the intended effect: reducing bloated inventories of oil around the world, and particularly in the U.S., that have kept prices down.
Declining exports to the U.S. show that Saudi Arabia is "getting serious" about addressing the supply glut, said Jan Stuart, global energy strategist at Credit Suisse Group AG. "And what we in the markets are looking for are concrete signs they are getting serious."
Yet skeptics say Aramco cutting shipments to the U.S. doesn't necessarily mean the global glut is shrinking. Traders are increasingly focused on U.S. inventories, in part because data there are easier to come by than in other places. When the EIA reported an unexpected increase in U.S. oil supplies last week, prices fell more than 5%.
"It's easier to hide these barrels in other parts of the world rather than sending them into the U.S.," said Michael Tran, commodity strategist at RBC Capital Markets. "It doesn't mean they're actually going to cut back on exports substantially."
And the fall in Saudi exports could reflect a number of other factors, such as rising U.S. production means domestic refiners need less of Saudi Arabia's crude. Saudi exports usually fall during the summer months because the kingdom requires more crude to generate electricity.
Some analysts say it is unclear where the oil that would have flowed to the U.S. will end up: feeding Saudi power plants, shipped to other markets, or stashed in storage tanks.
But others say Saudi Arabia can't increase global exports and meet its own power needs without breaking its promise to cut output, which they say the country is unlikely to do.
"It's not as if they're cutting from the U.S. and it ends up somewhere else," said Gary Ross, head of global oil at PIRA Energy, a forecasting and analytics unit of S&P Global Platts.
Aramco has raised the prices it charges Asian customers. Saudi exports to Asia are on track to fall about 230,000 barrels a day in June and 300,000 barrels a day in July, according to a person familiar with the matter.
An Aramco spokesman didn't respond to request for comment.
The lack of clarity into the global supply picture, and lingering doubts among some investors about whether OPEC members are cutting as much as they say, are reasons why oil prices have been so volatile in recent months.
When the cartel announced late last year that it would cut output in coordination with Russia and other major producers, many believed it would help work off the global glut relatively quickly. That briefly sent crude prices rising.
But U.S. producers quickly took advantage of those higher prices, and their output has increased rapidly. Global stockpiles have come down but remain well above the levels OPEC is targeting. Even the group's announcement in May it would continue to curtail production through March failed to excite investors.
The Saudi export declines could change that, some analysts said. Aramco has been raising prices to its U.S. customers as part of its effort to stop them from stockpiling so much oil in the world's most closely watched storage tanks. Earlier in June, it boosted prices for its light and medium grades by 50 cents for July shipments.
Saudi Energy Minister Khalid al-Falih said in May exports to the U.S. would decline for three reasons: increased competition, the Saudis' need to hoard some oil for summer domestic use and the breakup of its American refining partnership with Royal Dutch Shell PLC. Under the breakup, Shell kept two Louisiana refineries that are now taking less Saudi crude.
Even with the falling exports, many analysts remain skeptical after years of oversupply.
"The market will only believe it when they see it," said Amrita Sen, chief oil analyst at Energy Aspects. "Right now sentiment is very bearish. It's going to take awhile to turn this around."
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(END) Dow Jones Newswires
June 13, 2017 18:42 ET (22:42 GMT)