It may feel like ages ago, but a few months back the question raging in the oil market was whether Saudi Arabia had enough spare capacity to prevent the supply crunch about to ensue when US sanctions drove Iranian exports to zero.
The guarded nature surrounding Saudi Arabia’s oil industry only stoked the debate.
Of course, the feared supply crunch never materialized. The White House granted exemptions allowing eight countries to temporarily purchase Iranian oil after November 5 when sanctions snapped back in place.
It was too late, however, for Saudi Arabia to turn things around. Aramco was going all-out, implementing a plan hatched under a different set of assumptions.
This history resurfaced last week when the JODI oil monthly database was updated covering November 2018.
Saudi Arabia ramped up production from 10.64 million barrels per day (bpd) in October to 11.09 million bpd in November, an all-time high, according to JODI (See figure 1).
Whenever Saudi Arabia supply swings sharply higher -- as it did in November -- doubts always arise over the source of those extra barrels.
Did Saudi Arabia tap into its stockpiles? Or did production actually increase?
If the former is true then Saudi Arabia’s ability to maintain higher supply will be constrained by the size of its inventories.
And remember the bigger picture. Saudi Arabia remains the place to look when the world is counting barrels wondering who will quickly increase supply to counter soaring prices, as was the case in 2018 until the fourth quarter.
In these moments, a deeper understanding of the situation in Saudi Arabia can mean the difference for an oil trader between betting on higher or lower oil prices. That’s a big deal.
It’s therefore worth recapping how the oil market gains an understanding of Saudi inventories.
Since the early 2000s, the JODI oil database has been the primary source for information concerning countries not belonging to the OECD, including Saudi Arabia.
The problem is the lag between the release date and month covered. As noted above, the latest JODI data was released January 21 covering November. The rest of the 2019 calendar follows the same pattern.
Ursa closes this gap by providing a near real-time measurement of inventories in Saudi Arabia and elsewhere (150 sites globally) using synthetic aperture radar.
Our measurement of Saudi stocks showed a draw in November, as did JODI data. Figure 2 shows monthly inventory changes for Saudi Arabia and seven other countries using Ursa and JODI data.
Source: Ursa, JODI
Answering the question above, Saudi Arabia did tap its reserves, but not by much.
You could broaden the timeframe of this analysis from July through November when Saudi Arabia increased exports by 1.2 million bpd and arrive at the same conclusion, according to Michael Cohen, a commodities analyst at Barclays.
In his latest research note, Cohen examined Ursa and JODI data covering Saudi inventories and found the Saudis had been able to raise supply without having to significantly draw inventories lower at home or abroad.
While Ursa data covers Saudi domestic stocks, the JODI data likely includes Saudi stocks held overseas, which explains for the larger draw reported by JODI, Cohen said.
Nonetheless, the Ursa data remains a “relevant sanity check on how Saudi Arabia is meeting the demand for its crude,” he said.