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Fri 29 May 2020 06:25 PM

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Saudi oil continues to flow to China despite production cuts

Saudi flows to the Asian nation were about 2.1 million barrels a day through May 28

Saudi oil continues to flow to China despite production cuts

It’s just the third time since 2017 when average daily exports to China breached the two million mark.

An early look at Saudi Arabia’s crude exports for May shows that historic production cuts have done little to squelch the kingdom’s flood of oil to China, which is just getting back on its feet from the coronavirus.

Saudi flows to the Asian nation were about 2.1 million barrels a day through May 28 - a figure that may rise in the coming days - tanker-tracking and fixture data show. That compares with 2.3m in April, which was the highest since the start of 2017, when Bloomberg began tracking shipments. It’s also just the third time during that period when average daily exports to China breached the 2 million mark.

By contrast, overall Saudi crude shipments dropped to about 6.6m barrels a day this month after reaching 9.3m in April, also the highest in at least three years. Last month’s volumes were an anomaly, the result of a price war, and May’s exports are much closer to the average in recent years.

Still, the data shows a nation straddling two eras as the coronavirus turns the oil market on its head. Saudi Arabia is leading an unprecedented international effort to slash global output by more than 10 percent to help remove a glut, caused by the pandemic crushing oil demand. Before it agreed to those curbs, however, the kingdom slashed selling prices to the lowest in decades. The effects of this grab for market share are still rippling through the market as China recovers.

Also of note in May, Saudi shipments to the US and India both slumped. Last month, the kingdom sent almost 1.3m barrels a day to the US, a glut that threatened to disrupt the American market. Flows to the US this month have dropped to about 570,000 barrels a day, though the figure could rise as several vessels still haven’t signalled final destinations.

Saudi crude exports to India, its closest major market, plunged by almost 50 percent to 560,000 barrels a day in May. Last month, Saudi shipments surged as the kingdom edged out other exporters to the South Asian nation, notably Iraq.

Next month, the export picture could show another decline in overall flows. State oil producer Saudi Aramco has already indicated it will trim shipments to Asia while aggressively cutting those to the US and Europe. And Saudi Arabia and Russia, the leaders of the OPEC+ effort to curb output, earlier this week pledged further coordination.

The Organisation of Petroleum Exporting Countries and its allies are set to hold online meetings June 9-10 to discuss the future of their pact.

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