Saudi barrels are being simultaneously pushed away from the US and pulled towards Asia. Saudi crude oil exports to East Asia so far this year have increased by 467,000 barrels per day versus 2018, accounting for over 20 percent of East Asia’s total crude imports. At the same time, Saudi oil exports to the United States have dropped by 360,000 bpd as US domestic production rates increase.
China, Japan and South Korea are the top three buyers of Saudi crude in East Asia, with Beijing’s imports reaching a record high in June at 1.8 million bpd. Saudi crude so far in 2019 accounts for nearly 18 percent of China’s overall crude imports. The Sinochem-operated Fujian refinery in southern China is among those we have seen pulling in more Saudi crude imports so far this year. Saudi Arabia is also the leading supplier of crude to both Japan and South Korea.
Demand growth in Asia explains the rise in flows from the Persian Gulf, with particular strength from Saudi Arabia and Iraq. Earlier this year, China and Saudi Arabia struck energy agreements, including a $10 billion deal for a refining and petrochemical complex in China.
As Asia pulls in more Middle East barrels, less of it flows to the US. This is due to a lack of necessity, as opposed to political will to draw down US inventories. The US is simply pulling in fewer waterborne barrels as domestic production increases and its reliance on Canada grows.
US President Donald Trump has been quick to highlight this waning reliance: “We don’t need Middle Eastern oil and gas … but will help our allies!” he tweeted on Monday as prices soared due to attacks on Aramco facilities of Abqaiq and Khurais.