UAE oil exports to the US have been rising in the past few months, a sign of the tough worldwide market conditions prevailing since crude prices began falling mid-year.
US imports of UAE crude rose in August to 2 million barrels, the highest level since July 2009, when they reached 5 million barrels in the wake of plunging oil prices and the worldwide financial crisis.
The UAE usually sells almost its entire crude exports of more than 2 million barrels per day to refiners in Asia, where it can get the best prices. But while the volume going to the US is still small in relation to UAE exports and US imports, the increase is a sign of the current world oil glut, where tough competition has resulted in oil turning up in unusual places.
Last week, for example, the US energy information agency (EIA) said Alaska North Slope crude oil had sold to Asia for the first time in a decade. It added that the US had re-exported crude originating in Canada to refiners in Switzerland and other European and Asian buyers.
In its latest status report yesterday, the EIA said US crude oil imports fell again in the week ended October 31, averaging about 6.7m bpd, down by 426,000 bpd from the previous week. Over the past four weeks, crude oil imports averaged over 7.2m bpd, 4.4 per cent below the same four-week period last year.
Rising North American production is one of the main factors behind the lower oil prices, which has resulted in benchmark North Sea Brent crude falling by more than 30 per cent since its high in June to stand at just above US$80 a barrel late in London afternoon trading yesterday. And demand in some of the world’s largest economies – and energy consumers – particularly China, has disappointed this year and growth forecasts have been cut.
In response to losing market share, Saudi Arabia this week cut its prices for US customers. The kingdom averaged crude exports to the US last year of about 40 million barrels a month, but that rate has fallen sharply this year and was below 28 million barrels in August, the lowest since the economic slump in 2009. The state oil firm Saudi Aramco cut the premium for its December-delivery Arab Light crude which it charges US customers, to $1.60 over the benchmark Argus Sour Crude index, 45 cents lower than the previous month. That is the lowest premium since 2013.
Although Saudi Arabia can get higher prices for its oil in Asia, it wants to defend its US market share for both commercial and political reasons, according to Gary Ross, an energy economist and head of Pira Energy Group in New York. “The Saudis tend to have a portfolio approach: they want to sell to all major markets even if they can get higher prices in Asia,” he said.
“Also it is reasonable to assume that there is some sensitivity on their part to such a large drop in the volume of exports to such an important political ally.” The UAE takes a different approach, usually marketing well above 90 per cent to long-term customers in Asia. The unique pricing approach taken by the state oil firm Adnoc also does not help with marketing flexibility, according to traders and customers alike. Whereas most oil producers base official selling prices on lifting crude two months ahead, Adnoc tells customers the price retroactively.
“It’s like if you bought an iPad and someone told you a month later how much you were going to pay for it. Except you don’t need to hedge an iPad”, as most refiners need to do with oil, said one oil analyst.
Therefore the UAE’s crude oil is not likely to be turning up in the US markets as part of a deliberate strategy, but more likely because it was not able to find a buyer in its traditional market in Asia.
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