Singapore — Saudi Arabia's recent push to maintain international oil market share saw its oil exports surging in March, but the kingdom may find itself unable to maintain much upward momentum in the coming months.
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The latest official data from the Riyadh-headquartered Joint Organizations Data Initiative or JODI, published Monday, May 18 showed that Saudi crude exports rose by 548,000 b/d in March to 7.898 million -- their highest level in over a decade.
However, March is the last month of the Arabian Peninsula's cooler season, with maximum daytime temperatures in Riyadh still averaging below 30 degrees Celsius.
Temperatures start to rise rapidly thereafter, with the daytime maximum typically averaging 45 degrees Celsius by July, the hottest month of the year.
As the mercury rises and demand for air conditioning soars, so does Saudi Arabia's domestic oil consumption, as the kingdom burns significant volumes of fuel oil and crude for power generation.
Since 2012, the winter-to-summer swing in domestic oil consumption has run at around 1 million b/d, with direct crude burning accounting for most of the difference, according to a study by the Oxford Institute and US Energy Information Administration.
The seasonal fluctuation in domestic oil demand is most pronounced when the Muslim Holy month of Ramadan falls during summer, as it does this year, running from mid-June to mid-July.
YASREF REFINERY START-UP
Another reason why Saudi Arabia may have difficulty raising oil exports further, or even maintaining them at the level reached in March, is that its new 400,000 b/d Yasref refinery at Yanbu was still undergoing commissioning at that time.
Although the first cargo of diesel from the Yasref refinery, which is operated by a joint venture between state-owned Saudi Aramco and China's Sinopec, was loaded in January, the refinery was not expected to operate at full capacity until the second quarter, Jadwa Investment said in its last quarterly oil market update, published in April.
As a result, crude uptake by Saudi refineries this year was forecast to average 2.2 million b/d from Q2 onwards, up 100,000 b/d from Q1, the Jadwa report said.
CRUDE OIL PRODUCTION
Since most of Saudi Arabia's products output, especially the gasoline component, is sold domestically, that means the kingdom would have to raise crude output further to keep oil exports flat.
Saudi oil minister Ali al-Naimi said in April that production was set to continue at around the 10 million b/d level after reaching a new record in March, implying that output is unlikely to rise further.
Naimi also recently stressed that Saudi Arabia has become the world's most reliable oil supplier by investing vast sums in maintaining spare production capacity, which he said the kingdom had repeatedly used to balance the market during times of tight supply.
In its recently published 2014 annual review, Saudi Aramco said its maximum sustainable oil production capacity would continue to be maintained at 12 million b/d, implying target spare capacity of about 2 million b/d.
Monday's JODI data update confirmed that Saudi production did indeed set a record in March, reaching 10.294 million b/d, squeezing spare capacity to about 1.7 million b/d.
It is unlikely that Saudi Arabia would risk eroding its reputation for reliability by allowing its spare capacity to tighten too much.
POLICY FOCUSED ON MARKET SHARE
March production also re-established Saudi Arabia at least temporarily as the world's top oil producer, a position that was previously usurped by Russia.
That was significant, as Russia in October 2014 had rejected Naimi's call for major oil producers from outside OPEC to co-operate with OPEC counterparts in proposed joint supply cuts aimed at preventing a major price slide.
Subsequently, at the organization's November ministerial meeting, Naimi steered OPEC towards a new policy of protecting market share, which indeed intensified the decline in oil prices already underway.
For Saudi Arabia, the new strategy meant above all taking steps to bolster its share of the Asian market and especially to reverse a dip in exports to China.
A flurry of recent official visits by Naimi to Beijing and other Asian capitals were preceded early this year by cuts in Saudi official selling prices to Asia, which had the desired effect of driving up demand from the region for Saudi oil.
However, OSPs have been raised twice since March, after the sudden surge in Asian demand forced Saudi Arabia to impose volume restrictions, mainly by limiting the amount by which term customers could receive over their base allocations.
CHINA, INDIA LIFT IMPORTS
Plats C-Flow data showed 17 VLCCs, equating to about 34 million barrels, arriving in China from Saudi Arabia in April, up from 15 in March and nine in February.
India's crude oil imports from Saudi Arabia rose nearly 20% year on year in April to 3.72 million mt (909,000 b/d). April imports were also up 14% from March imports of 3.27 million mt, the data showed.
This reflects the kingdom's March export peak, as many of the April arrival cargoes would have been lifted in March.
Data for April for the other top Asian consumers -- Japan and South Korea -- will be available in the next couple of weeks.