(Repeats earlier story for wider readership with no change to
text. The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
SINGAPORE, March 28 Saudi Arabia and Russia are
likely to discover that when pursuing two incompatible goals,
the one deemed less important will ultimately be sacrificed.
The world's top two oil exporters appear to be chasing both
higher crude prices through their curbs to production and market
share by increasing exports, at least in Asia, the world's
biggest crude importing region and the fastest growing.
The question is which of these two goals will ultimately be
abandoned in favour of the other, and how long will it take for
Saudi Arabia and Russia to realise the incompatibility of their
The crude import data from Asia's biggest buyers show the
scale of the challenge facing Saudi Arabia and Russia, the two
countries that are the lynchpins of the November agreement
between the Organization of the Petroleum Exporting Countries
(OPEC) and its allies to cut output by 1.8 million barrels per
day (bpd) in the first six months of 2017.
That agreement, which provided an initial boost to crude
prices, may be extended for another six months after ministers
from OPEC and non-OPEC producers agreed on March 26 agreed to
conduct a review.
While OPEC and its allies have had success in ensuring high
compliance with the deal, which has started the process of
drawing down high global oil inventories, they have also opened
the door to producers outside the agreement to raise output.
Chinese customs data for the month of February highlight how
at risk OPEC and its allies are from cutting their own output
while their rivals are free to pump as much as they want.
China imported 4.77 million tonnes, or about 1.24 million
bpd, from top supplier Saudi Arabia in February, down almost 13
percent from the same month a year earlier.
While February's imports were down from the same month in
2016, they were actually up from the 1.18 million bpd China
imported from the kingdom in January, which shows that the
Saudis seem reluctant to restrict sales to their top customer.
That's strike one against boosting prices in favour of
preserving market share.
China imported 1.19 million bpd from Russia in February, up
4.5 percent on the same month last year and also above the 1.08
million bpd recorded in January.
So far, that looks like strike two against cutting supplies
to increase prices over preserving market share.
To be sure, there were countries that agreed to the cuts
that did reduce their exports to China in February, such as the
United Arab Emirates, but this was more the exception than the
China's imports from Saudi Arabia are 1 percent higher in
the first two months of 2017 from the same period last year,
while those from Russia are up 18.9 percent higher, from Angola
5.1 percent, Iraq 26.2 percent, Iran 9.4 percent and Venezuela
These figures don't really speak of a concerted effort to
restrict supplies to China, which has overtaken the United
States to be the world's largest importer of crude.
BRAZIL GAINS MARKET SHARE
It will also be disturbing for OPEC and its allies to look
at the 64.8 percent surge in China's imports from Brazil in the
first two months of this year to 392,000 bpd, and even from
Britain, with a 380 percent leap to 126,000 bpd.
Sure, these are small numbers in the context of China's
imports of 8.14 million bpd in the first two months, but it does
show the Chinese are willing and able to tap other suppliers if
they feel any pinch from OPEC and its allies cutting production.
It's a somewhat similar story in India, Asia's number two
India's imports of crude oil from Brazil jumped 176.2
percent in the first two months of the year to 139,300 bpd,
according to vessel-tracking and port data compiled by Thomson
Reuters Supply Chain and Commodity Forecasts.
It was more of a mixed picture from exporters party to the
November agreement, with India's imports from Saudi Arabia down
by 15.2 percent to 789,900 bpd in the first two months, while
Iraq saw a drop of 37.5 percent and Kuwait 27.3 percent.
But India's purchases from Iran were up 211 percent, from
the UAE by 19.7 percent and Azerbaijan by 220 percent.
What the crude import numbers from China and India for the
first two months show is that by and large the top producers
seem reluctant to cut supplies to major Asian buyers, and that
even if they do, other producers seem willing to step into the
It's the ability of producers outside the agreement to fill
any supply gap that's the potential strike three against cutting
output to boost prices.
The United States exported around 950,000 to 1 million bpd
in February, according to participants in the industry who spoke
at an Argus crude oil forum in Singapore on Tuesday.
The participants, some of whom represented U.S. oil
producers, expect that this level of exports can be sustained,
and will increase in coming years as shale producers,
particularly those in the Permian basin ramp up output, given
they can be profitable at prices as low as $40 a barrel.
The U.S. shale industry is still the Sword of Damocles
hanging over the head of OPEC and its allies.
While their agreement to curb output may have some impact
insofar as drawing down excess inventories, perhaps it would be
better for Saudi Arabia, Russia and the others to hope for
stronger world economic growth to spark a demand-led
(Editing by Christian Schmollinger)