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Analysis: Saudi crude oil production data catches market by surprise, but not all are convinced


Saudi sources said July production was 10.29 mil b/d

Many independent surveys, including Platts', much higher

Kingdom had signaled output boost, but exports fell

London — The unexpected news last week that Saudi Arabia cut crude oil production by 200,000 b/d last month has the market scratching its head.

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The kingdom, which had signaled after the June 23 OPEC meeting that it could pump as high as 11 million b/d, instead produced a much more modest 10.29 million b/d in July, Saudi sources told S&P Global Platts on Friday, down from 10.49 million b/d in June.

Crude supplied to market was 10.38 million b/d, the sources added, indicating that Saudi Arabia pulled barrels out of storage.

The figures are at odds with several independent assessments of Saudi production, including Platts' OPEC survey released earlier Friday, which pegged the kingdom's July output at 10.63 million b/d.

Several Platts survey participants said this week they were sticking with their convictions that Saudi Arabia increased production.

"We haven't seen any destocking that could justify why the supply to market was higher than production at 10.38 million b/d," said one Platts survey participant, adding that he would not be revising down his production estimate.

Others, however, were more willing to take at face value the Saudi source numbers, which were reported by several news agencies.

One participant cited lower export figures in the month and indications that Saudi Arabia was having trouble placing its barrels into the market. Platts tanker tracking software cFlow shows Saudi crude exports dropped 461,000 b/d from June to 7.140 million b/d, despite the country's OPEC Governor Adeeb al-Aama saying July 19 that exports would be flat month-on-month.

"I think what they're trying to do is, there's a story in the market that the Saudis and the UAE and Kuwaitis and Russians were all vastly increasing production well ahead of any cutbacks from Iran, and I think they are trying to change the narrative," the survey source said.

The Platts OPEC figures are compiled by surveying OPEC and oil industry officials, traders and analysts, all of whom remain confidential, as well as reviewing proprietary shipping data.

Saudi officials did not elaborate on why production fell in July.

Platts reported last month that several of state-owned oil company Saudi Aramco's Asian customers were given full term contractual volumes for available crude grades loading in August, reversing cuts made in previous months.

A European refining official also told Platts that Aramco was loading cargoes in July up to 10% above contracted volumes to sell more crude using a shipping flexibility clause called operational tolerance, or op-tol.

But in a sign that expected robust demand is not materializing for Saudi crude as hoped, Aramco last week slashed its official selling prices for crude to Asia and Europe loading in September.

In his July 19 statement, Aama said that Saudi Arabia "does not try to push oil into the market beyond its customers' needs."

Output input

Platts is one of six independent secondary sources used by OPEC to track member production monthly.

Argus Media, another secondary source, estimated Saudi July production at 10.29 million b/d. Energy Intelligence's Petroleum Intelligence Weekly and IHS Markit have not publicly released their OPEC figures, while the US Energy Information Administration reports its numbers later Tuesday, and the International Energy Agency reports Friday.

An OPEC source told Platts on condition of anonymity that the average of the secondary source figures, which the organization will include in its monthly oil market report to be released Monday, is likely to be greater than Saudi Arabia's self-reported figure.

Bloomberg and Reuters, which are not counted among the six secondary sources, both estimated Saudi production at 10.65 million b/d for July.

While exports can readily be tracked, the country's internal consumption and changes in storage levels are less easily quantified in real time, noted Michael Cohen, head of energy markets research for Barclays, which does not participate in Platts' OPEC survey.

"If loadings fell month on month, it's hard to see how we should expect that much of an increase in wellhead output, and at best it's something that's level with the June numbers," he said, while conceding that higher refining runs and direct burn for power generation could result in a larger production figure.

David Wech of JBC Energy, which also does not participate in the Platts survey, said the Saudi production figure announced Friday "comes quite as a surprise," but added: "We see issues with the marketability of Saudi crude in the recent past."

Saudi Arabia has been under pressure from its key ally, the US, to increase production to keep the market from overheating, amid expected supply crunches from US sanctions on Iran and Venezuela's continued decline.

OPEC and 10 non-OPEC allies agreed on June 23 to boost output by some 1 million b/d from May levels by reducing overcompliance with production cuts in place since January 2017.

OPEC collectively produced 32.66 million b/d in July, the Platts survey found, up 340,000 b/d from June.

--Herman Wang,

--Edited by Alisdair Bowles,