According to a report by Bloomberg on Monday, Saudi Arabia is considering a significant reduction in its oil exports to the US in July. This move is expected to have a significant impact on Western markets and result in a tightening of supply.
The kingdom plans to unilaterally reduce its crude production by 1 million barrels per day (bpd) next month, which equates to a 10% drop. This would bring Saudi Arabia’s total output to 9 million barrels a day, the lowest level since 2011.
Bloomberg estimates that after the production cut, Riyadh will have less than 6 million barrels available for export. This means that oil exports to Western countries, such as Europe and the US, could be affected more than shipments to Asia, which is Saudi Arabia’s primary market.
“The bulk of that would go east of Suez, where Saudi Aramco, the state-controlled oil giant, has told several Asian refiners they would get as much crude as they requested. That means any cuts will be felt west of Suez: Europe and the US,” the Bloomberg article stated.
The report suggests that Saudi Arabia may prioritize supplies to its traditional Asian markets and reduce exports to the US in order to tighten the market. This tightening would be evident in inventory reports and could potentially jump-start prices, according to the outlet. Saudi Aramco, the state-controlled oil giant, has significant influence over supplies to the 630,000-bpd Motiva refinery in the US.
Although the US has reduced its dependency on Saudi crude in recent years, the cut in exports is seen as the best chance for Riyadh to boost prices, the report claimed.
Furthermore, Saudi Energy Minister Prince Abdulaziz bin Salman revealed that the production cuts could be extended beyond July. This would add to the voluntary cuts agreed between Riyadh and other OPEC+ producers, including Russia, which came into effect in May. The total OPEC+ output reduction currently stands at 3.66 million barrels daily, or 3.7% of global oil demand.
In conclusion, the proposed reduction in Saudi Arabia’s oil exports to the US in July is expected to tighten Western markets. This move comes in the wake of the kingdom’s plan to unilaterally reduce its crude production by 1 million bpd next month. The impact of these actions is likely to be felt more in Europe and the US, as supplies to Asian markets remain largely unaffected. The potential extension of production cuts beyond July further demonstrates Saudi Arabia’s commitment to stabilizing oil prices.
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