Riyadh and the house of Saud have stated their intentions to reduce oil to the United States. This action is being taken in order to reduce oil inventories in the US. According to Saudi Oil Minister Khalid Al-Falih, the near record stockpiles of oil which have accumulated in the United States are preventing a rise in global oil prices.
At last weeks OPEC meeting Falih announced there would be a nine month extension to the production cuts at current levels. This news was widely expected, but the next day the Saudi Oil minister made an announcement that many players in the oil market had not anticipated. In a departure from Saudi Arabia’s previous policy of trying to retain it’s markets, the Kingdom will “markedly” reduce exports to the world’s largest customer, the US.
According to two people briefed on the Kingdom’s oil policy, the United States is expected to receive less than 1 million barrels of Saudi crude a day next month. If true, this would represent more than a 15% reduction from the 1.21 million barrels a day which the US has seen in recent months. The OPEC deal which (Saudi Arabia as the defacto leader of OPEC helped author) does not set limits on the amounts any member nation can export to customers.
As such Saudi Arabia has thus far avoided cutting exports to it’s prized American markets in favor of reducing exports to other nations. If true this departure from Saudi Arabia’s previous policy would mark a shift in the Kingdom’s thinking and a willingness to endure the needed hardships to genuinely reduce global inventories.
Inventory levels in the United States are used worldwide as a measuring system for the true inventory level of oil markets due to the high degree of accuracy in reported data. Therefore a reduction in inventory levels in the US may have a disproportionate effect upon oil markets worldwide.