Saudis focus oil shipments on China during production cuts

Darnell Taylor
June 1, 2020

The more active August contract rose 5 percent to settle at US$37.84 a barrel.

"From a peak annual contraction of 21 million bpd in the second quarter of 2020, we expect global oil demand contraction to eventually abate to 2.1 million bpd in the fourth quarter", said Harry Tchilinguirian, head of commodity research at BNP Paribas. It's also just the third time during that period when average daily exports to China breached the 2 million mark.

"Total products supplied over the last four-week period averaged 16.2 million barrels a day, down by 20.1% from the same period previous year". This is what the oil market needs.

This year, oil prices have fallen more than 40% due to lower demand caused by efforts to limit travel and shut businesses to combat the virus.

Yet refinery runs and gasoline demand were on the rise, and that shows that as the US starts to open up its economy, demand for oil will spike.

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The vessels were launched by the kingdom before it called a halt to the price war on April 12 and agreed new production cuts with Russian Federation.

Worsening U.S. -China tensions over Hong Kong also tempered investor optimism about demand recovery.

Last month, West Texas Intermediate, the USA benchmark, traded below zero for the first time in history, sending shockwaves through a shale patch where producers need nearly US$50 a barrel to make a profit. Flows to the USA this month have dropped to about 570,000 barrels a day, though the figure could rise as several vessels still haven't signaled final destinations.

The American Petroleum Institute (API) reported late Wednesday that stockpiles expanded by 8.7 million barrels for the week ended May 22, compared with analysts' expectations for a draw of 1.9 million barrels. Last month, Saudi shipments surged as the kingdom edged out other exporters to the South Asian nation, notably Iraq. And Saudi Arabia and Russian Federation, the leaders of the OPEC+ effort to curb output, earlier this week pledged further coordination.

Looking ahead, traders will be focusing on the outcome of talks on output cuts between members of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russian Federation, in the second week of June.

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