Saudi Arabia will target the United States with a huge oil export cut in a bold move to slash massive inventories -- and to take revenge on president Donald Trump.
Oil industry sources said the Saudis might even ship only 582,000 barrels of crude a day to the U.S., which will be lower than the 30-year low set in 2017. This quantity will be 40 percent lower compared to the most recent three-month average.
The Saudis planned export cuts come after it flooded the U.S. market in recent months and was rewarded by being double-crossed by Trump. The Organization of Petroleum Exporting Countries (OPEC) earlier in the year increased production to offset expected losses of Iranian supplies from world markets due to renewed U.S. sanctions on Iran.
But when the sanctions were imposed in early November, the Trump administration granted waivers to six of Iran's biggest customers. A supply glut ensued, worsening an already bad situation.
OPEC had been "duped" and "double-crossed" by Trump, said one oil industry analyst.
The Saudis now plan to slash exports to the world's largest oil market in the next few weeks in an effort to slash already huge crude inventories - and take a measure of revenge on Trump.
The Saudis have told American-based oil refiners to expect much lower shipments in January 2019 following the OPEC agreement to reduce production. Total Saudi exports will plunge to 7 million barrels a day in January, down from 8 million barrels a day in November-December.
Khalid Al-Falih, the Saudi energy minister, last week revealed that Saudi production will drop in January to 10.2 million barrels a day, down from 11.1 million barrels a day in November.
The Saudis intend to demonstrate their resolve in the upcoming production cuts and prove they will actually cut production. The Americans are especially vulnerable to reduced oil inflows because U.S. oil markets react far more quickly to both bad and good news on the supply front.
The Saudi slash will, of course, infuriate Trump, who has used social media to ask the Saudis and OPEC to keep producing more and more oil to help him overcome his multitude of domestic scandals.
If fully implemented, the Saudi export curbs will affect big U.S. refiners such as Phillips 66, Chevron Corp., Exxon Mobil Corporation, Valero Energy Corporation, and Marathon Petroleum Corporation. It will force these refiners to buy similar crude elsewhere, such as Mexico, Canada or Venezuela.
Saudi Arabia has exported 860,000 barrels a day of crude to the U.S. on average so far this year. Saudi exports into America were even higher in the second half of the year. July-to-December shipments rose to an average of 975,000 barrels a day.
