When Saudi Arabia boosted production in June, the message delivered to the global oil market was clear. The Saudis were willing and able to fill any supply gaps left by declines from Venezuela, Libya and Iran.
Saudi oil exports surged ahead of the June 22 OPEC meeting. But some of the additional supply looks like it ended up in storage.
That’s not surprising. Saudi Arabia sells exports under long-term contracts. Volume can be adjusted every month, but only by so much. That makes it unlikely for Saudi exports to match the change in monthly production, especially a large one.
Saudi Arabia told OPEC it pumped 10.5 million b/d in June. That was up 459,000 b/d from May and came close to the record high of 10.72 million b/d set in November 2016.
Ursa data shows Saudi crude inventories building from late May through mid-June and then leveling off. That suggests the production increase outstripped exports and refinery demand. The pendulum then swung the other way preventing further builds.
Opening the spigots certainly had a price impact. Brent crude backed off and then fell hard as talk of scarcity was replaced by the sense of abundance.
This also comes as the White House ratchets up pressure on Saudi Arabia to raise production to ward off price spikes when Washington reimposes nuclear sanctions on Iran in November.
President Trump wants lower oil prices before the fall midterm elections. But the view from Riyadh looks a whole lot more complicated when it comes to oil prices.
The Saudis are widely seen as adverse to volatility, preferring prices in a stable range neither too high or too low.
The plunge in oil prices this month might have caught them off-guard as they watched Brent head toward $70/b without any support.
In a bid to arrest the slide, Saudi Arabia’s OPEC governor released a statement saying exports would be unchanged in July and then decline by 100,000 b/d in August.
The PR seemed to work. Oil prices rose on the news, providing hope in Saudi Arabia that OPEC can increase output without sending the market into a tailspin.