The phony war is over and as of 1 April, Opec+ countries can now produce without restriction. Having made bold statements in the aftermath of last month’s landmark Opec+ meeting that they planned to unleash a torrent of fresh supplies, the time has now come for Saudi Arabia and the UAE to walk the walk. Between them, they have promised to increase supplies to the market by 3.5mn b/d.

Perhaps the move from rhetoric to action has focused minds elsewhere, because on 2 April oil markets received some rare hope. US President Trump tweeted “Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels [per day], and maybe substantially more.” He swiftly added “Could be as high as 15 Million Barrels. Good (GREAT) news for everyone!”

Within minutes, the Saudi Press Agency announced that the kingdom was calling for urgent talks between Opec+ and other producers to reach a “fair” deal to address the market imbalance. The announcement added that the call was “in appreciation of the request of His Excellency the President of the United States of America Donald Trump.”

Saudi Arabia’s push for deeper cuts at the acrimonious 6 March Opec+ meeting (MEES, 6 March) indicated that Riyadh’s eventual decision to end the agreement was not a strategic choice to end market management in favor of a free market approach. It wanted a deal, but only on its terms (MEES, 13 March) and so walked away when that was not forthcoming.

The same holds true now. Except that, having flexed its muscles, Saudi Arabia appears to want more concessions. Last month, the kingdom had pushed for Opec+ to bring its cuts to 3.6mn b/d, but now smelling blood, it wants other producers to shoulder part of the burden. Whether that is feasible is another question. As with last month, if concessions from others are not seen as adequate, Riyadh will likely walk away again.

Initial talks between the 23 Opec+ signatories are tentatively slated for Monday 6 April over video link, but arranging talks with a wider grouping may take time. A senior Gulf official remains hopeful that “maybe other producers will join the cut.” But is that likely? Even if US actors are inclined to participate, there would be a high risk of any move being stuck in a legal quagmire. That said, it is not difficult to imagine already-planned cuts to shale output being parlayed as the US contribution.

Potentially the most important role that the US might play would be to bring Saudi Arabia and Russia back to the negotiating table in a manner in which neither party appears to be backing down, and offering concessions in other fields as part of a wider package.

However, even if there is genuine momentum towards a deal, that will do nothing to ease the immediate supply/demand balance. Saudi Arabia and the UAE have committed to their maximalist approaches for this month at least: both will significantly increase production and exports for April. This will in turn ensure that already brimming global inventories surge towards “tank tops” (MEES, 3 April), placing further downwards pressure on prices.

Moreover, the scale of the demand erosion, at potentially more than 20mn b/d, means that any production cuts would merely ease the recent price falls, not fully reverse them.


*Despite recent calls for an urgent meeting of Opec+ and other producers, Saudi Arabia and the UAE will ramp up supplies in April.

*Saudi Arabia is sending additional volumes westwards, ramping up supplies to Europe and USA.

*The UAE will continue to focus exports on its key Asian markets.

*The impact of additional supplies is now far outweighed by demand erosion due to the Covid-19 pandemic.


In terms of flexing its muscles, Saudi Arabia has used every available mechanism to push its maximalist approach in recent weeks (MEES, 13 March). Riyadh’s approach has been to overwhelm the markets with huge figures for planned production and exports. Close ally Abu Dhabi has partially emulated this. Shortly after Saudi Arabia pledged to supply 12.3mn b/d from April, Adnoc pledged to supply 4mn b/d (MEES, 13 March), but has generally stayed more quiet.

The maximalist Saudi rhetoric continued on 1 April, as Saudi Aramco released a video stating that it was “breaking records to supply 15 tankers with over 18.8 million barrels of oil” in a daily maximum. No clarification was provided as to whether this was all crude oil, or whether it includes refined products. However, data from Marine Traffic indicates that crude loadings were significantly below this level.

Of course, even for Saudi Arabia, exporting 18.8mn b/d of oil is not sustainable. The highest monthly figure for gross crude and refined products exports was 10.294mn b/d, which was set in November 2018 (MEES, 25 January 2019). The video was instead a display of strength.

The Saudi Energy Ministry earlier this week also stated that from May it plans to boost “petroleum exports to 10.6mn b/d.” The wording implies this includes refined products, so this may not be an increase from earlier plans of 10mn b/d crude exports. However, the release of what on the surface appears to be a bigger number again is a clear continuation of the kingdom’s shock and awe strategy.

Data intelligence firm Kpler says that Saudi Arabia and the UAE have, even prior to the expiry of the deal, been increasing exports over the first quarter of the year. Saudi Arabia’s March crude exports of 7.53mn b/d easily outstripped the quarterly average of 7.31mn b/d. The same with the UAE, where March exports of 3.15mn b/d exceeded the Q1 average of 3.07mn b/d.

Drill down into the detail of the Saudi exports and some clear patterns emerged. On a quarterly basis, China retained its position as the kingdom’s largest buyer (see chart 1), but unsurprisingly volumes fell each month as the impact of Covid-19 within the country grew sharply.

Charts included 1: Saudi 1Q 2020 Crude Exports: More Than 20% Flowed To China, And Volumes To Europe* Soared (‘000 B/D)


Saudi exported a phenomenal 1.97mn b/d of crude oil to China in January, dipping to 1.88mn b/d in February. For March, not all destinations have yet been finalized, but the number is unlikely to be significantly more than 1mn b/d. Volumes may begin to increase again this month as China ramps up economic activity.

Meanwhile there is clear evidence that Saudi Arabia has substantially increased the amount of crude oil that it is shipping west. Volumes to the Sumed facilities in Egypt, which will ultimately predominately supply various Mediterranean buyers, averaged 1.1mn b/d in Q1, against last year’s 784,000 b/d (MEES, 24 January). This included a whopping 1.45mn b/d in March, putting Sumed facilities as the kingdom’s number one destination last month.

Riyadh made it clear that it was targeting the Mediterranean when it slashed April Arab Light OSPs to Europe by $8/B, more than to any other region. Those price cuts should see April volumes to the area rise by even more. Why would Saudi Arabia target Europe? To compete with Russia’s key Urals grade exports.

There has also been a revival in the volumes exported to the USA. Volumes were 374,000 b/d in January, crashing to 157,000 b/d in February, before jumping to 628,000 b/d in March. Some of that may be the result of loading dates: figures for US arrivals have been much smoother at 401,000 b/d for January, 444,000 b/d for February and 461,000 b/d for March. But, given the number of tankers that Saudi Aramco’s shipping arm has been chartering recently that have US destinations listed, March loadings no doubt were up substantially, and this will be reflected in April arrivals in the US.

April’s Arab Light OSPs to the US were cut by $7/B – less than Europe, but more than the $6/B cut for Asian destinations – in a further indication that Saudi Arabia is actively targeting the market. US refineries are configured to run better on Saudi grades than on the much lighter grades that typify the US shale patch. The competition for shale producers just got tougher.

The UAE meanwhile has a much less-diversified range of buyers. While Saudi Arabia has been sending around 75% of its exports to Asia, for the UAE the figure is typically around 99%. And that was no different in Q1 (see chart 2). It seems unlikely that the UAE will seek out fresh buyers in current market conditions, meaning that it will instead look to double down on its existing clients.

Japan remains by far the UAE’s largest customer, with some 960,000 b/d flowing there last quarter. Once the destinations for the remaining unknown cargoes are finalized, this figure may well rise above 1mn b/d. Japanese imports from the UAE have since 2019 been on the rise after years of decline, possibly due to the heavy involvement of Japan’s Inpex in the Abu Dhabi upstream sector, and the 977,000 b/d it imported in 4Q 2019 was a multi-year high.

India too has increased volumes from the UAE, and in Q1 was the second largest buyer of Emirati crude. However, with the Indian government placing the country on lockdown in late-March, and the biggest refiner declaring force majeure, demand will decline and imports are likely to fall unless Indian buyers opt to replenish stocks. The other key buyers of Emirati barrels are China, Singapore, South Korea and Thailand.

Charts included 2: UAE 1Q 2020 Exports: Japan And India Took Nearly Half Of Total Volumes ('000 B/D)