RIYADH: kingdom has been compensating for the loss of sales by accelerating its pivot towards Asia, with China vying with the US as one of the biggest buyers of Saudi crude. But any weakening of the economic ties that bolster Saudi Arabia’s relations with the US may still provoke concern in Riyadh, as it undergoes a major power shift.
“The behaviour of the kingdom over the past year suggests they recognised the US was going to be a declining market and east of Suez was their growth market,” said Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy.
“But this argument has limitations. They want to be diversified and need a presence in the US for geopolitical reasons.”
The last time that Saudi crude exports to the US averaged less than 1m b/d for a significant period was 2009, when the financial crisis had slashed demand for crude. There have been individual months when imports have fallen below that milestone level, but not for a prolonged period.
The only similar experience in recent memory was during the 1980s, when the kingdom slashed its own oil production in a failed attempt to prop up the price.
As recently as 2013, the US imported an average of more than 1.5m b/d.
While a sharp increase in US oil output has already taken the place of much of the crude that the country used to import from west Africa, rising imports from Canada appear to be the other driving force behind the need to bring in less crude from the Middle East.
Canadian exports to the US are now averaging more than 3m b/d, an increase of roughly 1m b/d since 2011.
The shift comes as Saudi Arabia has vowed to battle to hold on to its share of the oil market, leading to the Opec cartel’s decision last November to keep production high despite excess global supplies, triggering a price collapse.
Last week, it said it was succeeding in its policy to squeeze out higher-cost producers by keeping output high despite the 60 per cent price drop between June and January, sparking an angry reaction from one of the leading architects of the US shale revolution.
Saudi Arabia remains the second-biggest oil exporter to the US after Canada, and owns stakes in refineries and petrochemical plants in the country.
Oil exports to the US this year have been almost a third lower than during the same period last year, and have declined by about 400,000 b/d since 2012.
But they have strengthened since late March, weekly US government data show, indicating that the kingdom may not be prepared to give up on its share of the US market.
The history of the two country’s relationship has been steeped in oil. Just six years after Saudi Arabia was formed in 1932, Standard Oil of California struck black gold, transforming a desert kingdom into a major player on the world stage. State-backed oil group Saudi Aramco pumps roughly one in every nine barrels consumed globally.
Relations between the two countries have been strained recently, however.
Last week, King Salman bin Abdulaziz al-Saud, who took the throne in January, pulled out of a trip to visit President Barack Obama. The US president said that the two countries had “an extraordinary friendship” and sought to emphasise Washington’s commitment to the kingdom’s security.
Saudi Arabia is now aggressively marketing its crude to Asia, having lost market share to Iran and Iraq. Veteran oil minister Ali al-Naimi said in April during a trip to Beijing that Saudi Arabia was now sending China more than 1m b/d, having recovered from a dip last year, according to customs data.
The kingdom has also launched a number of refining joint ventures in Asia, including South Korea, similar to deals it already has with Shell through Motiva in the US, which operates the country’s biggest refinery.
“Asian demand for oil remains strong and we are ready to supply whatever is required,” Mr Naimi said.
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