State-owned Saudi Aramco released its customer allocations for April today, with volumes far below requests by about 635,000 b/d, according to a knowledgeable Saudi source. Despite very strong customer demand totalling more than 7.6mn b/d, companies were allocated less than 7 mn b/d for April.
Saudi crude oil production in April is expected to hover around, or slightly below, March levels of 9.8mn b/d, which is well below the 10.31mn b/d target the country agreed to as part of its commitment to the Opec, non-Opec deal that calls for the group to cut production by 1.2mn b/d for six months starting in January.
Saudi production fell to 10.1mn b/d in February, according to Argus data. Earlier, Saudi oil minister Khalid al-Falih said production would decline to 9.8mn b/d this month. That is a drop of 1.3mn b/d from its record production of 11.1mn b/d in November.
"Saudi Arabia is demonstrating extraordinary commitment to accelerating the market rebalancing, and that the kingdom expects all other Opec+ countries to show similar levels of contributions and high conformity," the source said.
The lower customer allocations come as competition among buyers is increasing to find alternative crudes to replace a significant net loss of medium and heavy sour grades as a result of US sanctions on Iran and Venezuela, as well as production cuts from Opec and non-Opec producers. The combined loss of heavy and medium sour crude supplies in the global market is forecast to average a staggering 1.8mn b/d in the first half of this year.
The Trump administration is also adding uncertainty about supply availabilities in coming months with its lack of transparency on whether it will extend waivers to the eight countries granted exemptions for Iranian crude exports in the first 180 days of sanctions, which are set to expire on 4 May.
Saudi Arabia prioritised maintaining market share in the key Asia-Pacific region, and especially China, in January and February, with the US customers bearing a disproportionate share of targeted cutbacks. Saudi Arabia's crude exports to the US have steadily declined since reaching a 2018 monthly high of 1.05mn b/d in October. US imports of Saudi crude in February were at half the October levels at an average 490,000 b/d, according to weekly data from the Energy Information Administration.
But the steep cuts in crude production cuts planned for March and April are reportedly forcing Aramco to limit allocations to customers across all regions.
At the same time, lower customer allocations coincide with a period of weaker crude demand in Asia-Pacific as refiners undergo seasonal maintenance, which may partially ease the sour crude supply crunch. An average of 870,000 b/d of crude capacity is expected to go off line in China in April-June.
Saudi state-owned Aramco raised official prices for its April-loading cargoes for buyers in the Asia-Pacific region, with the exception of Arab Extra Light, while reducing them for Mediterranean and northwest Europe customers. Aramco reduced the price of Arab Extra Light cargoes heading to US buyers by 30¢/bl while leaving the official prices of Arab Light, Arab Medium and Arab Heavy unchanged on the month.
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