By Matt Smith
As discussed on CNBC Asia last night, Core OPEC has been ramping up exports this month ahead of tomorrow’s OPEC meeting in Vienna. Historically, production typically rises ahead of an OPEC quota hike, and this time looks no different.
Saudi Arabia, Kuwait and UAE – the key proponents of the OPEC production cut deal – are all showing significantly higher crude exports so far this month, as spigots are opened once again. Our ClipperData below illustrate this stark turnaround.
The blue line shows Saudi’s exports versus the October 2016 reference level. They have been below it for every month in the last year and a half, except for March 2017…..and now. June exports have ramped up – over 500,000 bpd higher than last month.
In terms of the red area, it shows flows bound for Asia versus the October 2016 level. Flows have been higher in every month except April and May 2017, as Saudi has favored sending its crude to Asia, at the expense of the United States. Flows bound for Asia so far this month are the highest on our records:
We’ve mentioned previously how Saudi had an epiphany in late May of last year, realizing that by substantially cutting flows to the U.S., they would aid inventory draws (…in the largest, most timely and most transparent market in the world…) and boost bullish sentiment.
U.S. imports of Saudi crude averaged 1.1 million barrels per day over the 17-month period before Khalid Al-Falih’s comments on May 25 2017, before dropping to average 740,000 bpd over the twelve months since:
While Saudi is the leading crude exporter in the Middle East by a long shot, it is also the leading exporter of middle distillates (particularly gasoil and jet A-1).
As lower crude exports from the likes of Saudi and Kuwait (UAE, sit down) have crimped revenues amid the OPEC production cut deal, exports of middle distillates have ramped up.
Some suggest this is less to do with side-stepping the production cut deal, and more to do with refining capacity expansion in the region. Either way, materially higher middle distillate exports are helping to offset crude revenues to bolster coffers. Exports from the region so far this year are outpacing year-ago levels by 240,000 bpd, a hefty chunk.