Saudi crude oil shipments to be cut by 500,000 b/d after Trump grants Iran sanction waivers to China, India and 6 other countries

saudi crude shipments
Saudi crude shipments are expected to be reduced in December by 500,000 barrels per day next month, according to the kingdom's energy minister.  Bloomberg photo.

Saudi crude shipments are expected to be reduced in December by 500,000 barrels per day next month, according to the kingdom’s energy minister.  Bloomberg photo.

Saudi crude shipments cut in response to lower seasonal demand

Saudi Arabia says it will cut its exports of oil by 500,000 barrels per day (b/d) next month, according to the kingdom’s energy minister.

Khalid al-Falih told reporters on Sunday that the Saudi crude shipments cuts are in response to lower seasonal demand.  The cut amounts to reductions of about 0.5 per cent of the global supply of crude.

The cuts come after the Saudis boosted their production in response to pressure from US President Donald Trump to balance the market and avoid oil price spikes expected to occur after the Trump administration put in place sanctions on Iranian crude.

“The highly anticipated Iranian sanctions were formally announced last Monday,” Drillinginfo noted in its weekly research note.

“However, waivers for China, India, Japan, Italy, Greece, Turkey, South Korea and Taiwan allow these countries to purchase Iranian crude for the next six months. This brought additional declines rather than gains.”

Last week oil prices fell below $70/barrel from a high of $85/barrel in October.

“We have been increasing production in response to demand,” Falih said when speaking with reporters in Abu Dhabi prior to a joint OPEC, non-OPEC market monitoring committee meeting.

“I’ll tell you a piece of news which is (that) December nominations are 500,000 barrels less than November. So we are seeing a tapering off part of it is year end, part of it is maintenance…. so we will be shipping less in December than we are in November.”

According to Reuters’ sources, the Saudis are working on a proposal that would see OPEC and its supply cut allies cut their output by 1 million b/d in response to the recent drop in oil prices.

Such an agreement hinges on a number of factors, including how much crude Iran exports in the wake of the imposition of the Trump sanctions.  Also, Russia’s participation is integral, however, Russian Energy Minister Alexander Novak said on Sunday that he isn’t certain the global oil market will be oversupplied in 2019.

Novak argued the currently oversupply could evaporate in a few months as it is seasonally driven, and the market in 2019 could balanced and demand could exceed supply.

Reuters’ sources say the Saudis were surprised that the Trump administration granted the waivers to eight of Iran’s customers, including China and India.  After the announcement concerning the waivers, oil prices tanked.

“No one expected the waivers. Saudi Arabia wants to at least put a floor under oil prices. No one wants a free fall in prices,” said one Reuters source.

Price gains of the last few months were facilitated by expectations that sanctions and continuously declining Venezuelan production would reduce supply, says Drillinginfo, but sentiment has shifted to bearish with sanction waivers and supply data (accelerated growth by Russia and OPEC, especially Saudi Arabia) pointing to a potential surplus.

The Saudi discussion on cutting supply is in response to the drop in oil prices and comes at a time when the OPEC supply cut agreement is soon set to expire.  The deal to reduce the global supply of crude by 1.8 million b/d runs out at the end of the year.

OPEC and its partners in the supply cut will meet in Vienna on Dec. 6-7 to decide on their output policy for next year.

“There is a general discussion about this (cut). But the question is how much is needed to be reduced by the market,” one of the sources told Reuters on Sunday.

Kazakhstan’s deputy energy minister Magzum Mirzagaliyev told Reuters that he believes the Saudis are suggesting using August-October output levels as a baseline to determine cuts.

Meanwhile, Falih says he would prefer to “move into 2019 with minimum interventions,” however, he did not rule out the possibility of a cut in production next year.

“I think ideally we don’t like to cut. Ideally we like to keep the market … liberally supplied and comfortable. We will only cut if we see a persistent glut emerging and quite frankly we are seeing some signs of this coming out of the US, we have not seen the signs globally,” he told reporters.

By 1:48 p.m., EST, on Monday, Brent oil prices rose slightly, rising 11 cents to $70.29/barrel but US West Texas Intermediate fell below $60/barrel, dropping 23 cents to $59.96/barrel.

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