The market hasn’t seen the full impact of Saudi Arabia’s extra production cut, which could lead to a drastically tighter market if the world’s top crude oil exporter keeps export levels low, according to Vortexa.
On Tuesday, Saudi Arabia said it would extend its 1 million bpd cut through December.
The move reinforces “the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets,” the Kingdom says.
Russia also extended its 300,000 bpd export cut until the end of 2023.
Saudi Arabia could be able to single-handedly tighten the market in the fourth quarter, even without the help of other OPEC+ producers, if it keeps export levels as low as it did in August, David Wech, Chief Economist at Vortexa, wrote in a note this week.
The Saudis slashed their crude and condensate exports in August by more than 1 million bpd compared to the average over 2022 and by 1.6 million bpd compared to the average over the first half of 2023, data from Vortexa showed.
Russia’s exports are also estimated to have dropped last month, but not by as much as Russia’s pledge of 500,000 bpd cut in August suggested.
Vortexa’s best guess for actual cuts in Russian exports is around 150,000 bpd.
So far, Saudi arrivals at ports of destination haven’t changed much, which could fool the market into believing the impact of the Saudi cuts isn’t that big.
“The risk is therefore that market participants discard the full impact of Saudi/OPEC+ cuts, as barrels continued to arrive for now,” Vortexa’s Wech said.
Going into the fourth quarter, “As far as we can tell, demand indicators are not looking particularly bad,” Wech added.
Globally, crude and product stocks have been drawing both onshore and offshore, thinning the cushion against a possible supply crunch.
“[I]t looks questionable whether Saudi Arabia can really maintain production and export levels at the lows of August throughout the end of the year, without tightening the market drastically and pushing prices far beyond the $100/b threshold,” Wech noted.