U.S. Imports of Saudi Crude Won’t Stay Zero for Long

(Bloomberg Opinion) -- In the final week of 2020, the U.S. imported no crude from Saudi Arabia for the first time in 35 years. But it's not quite the historic moment it might seem at first sight.

As recently as 2017, the desert kingdom was regularly sending more than 1 million barrels a day of its crude across the Atlantic and Pacific Oceans to the U.S. Within the space of four years that market has all but disappeared, as the shale industry boomed for a second time and then demand collapsed with the pandemic.

The drop to zero doesn't spell the end of Saudi shipments to the U.S. Already that figure won't be repeated in Wednesday's weekly report from the Energy Information Administration that covers the first full week of January. U.S. customs data show 1.9 million barrels of Saudi crude entered the country during that period.

The pattern of dwindling flows to the world's biggest oil market is one that's been felt by producers around the globe.

The first to feel the chill (aside from Iran, which hasn't exported crude to the U.S. since President Jimmy Carter imposed sanctions in 1979) were those in West Africa, particularly Nigeria. Their oil shipments across the Atlantic were hit by the 2008 financial crisis and then crumbled in the teeth of the first shale gale beginning in 2011. They revived briefly as that boom ran out of steam in 2015, but the recovery was short-lived.

Despite their proximity to the U.S. — it takes about three weeks to deliver crude to the East and Gulf coasts, compared with six from the Middle East — the West African producers suffered because the crude they produce is closer in quality to U.S. shale crude than rival supplies and was therefore easier to substitute in refineries.

The Middle East producers initially fared better, despite their distance and perennial U.S. geopolitical concerns about reliance on supplies from the region. Iraqi shipments thrived, hitting a 15-year high in April 2018, as the country's industry recovered from decades of war, sanctions and mismanagement.

But that boom was short-lived. The second U.S. shale wave hit everybody. With refineries reconfigured to get better results from a lighter, sweeter (less sulfurous) feedstock, there was less need for imported oil. New pipeline capacity from Canada also opened up the way for increased supplies of heavy, high sulfur crude from Alberta.

Even after the second shale surge petered out at the end of 2019, the decline continued. This time it was driven not by competing domestic production, but by the pandemic-induced slump in U.S. oil demand.

So, is it all over for the flow of Saudi oil to the U.S.?

Not yet. The collapse of Venezuela's oil industry, hastened by U.S. sanctions, and declining exports from Mexico and Colombia, means the U.S. will need to import heavy crude from elsewhere. Dwindling supplies from around the Caribbean aren't going to come back quickly, if at all.

Saudi ownership of the Motiva Port Arthur refinery in Texas mean it's likely to continue providing a market for the kingdom's crude. Chevron Corp., which operates the Wafra oil field in the Neutral Zone shared by Saudi Arabia and Kuwait, is also a regular buyer of Saudi crude for its El Segundo and Richmond refineries in California.

There will inevitably be weeks when imports drop to zero again, but the U.S. hasn't completely weened itself off Saudi crude. Imported volumes are likely to remain small, though, even if Joe Biden's incoming administration is less supportive of domestic oil producers and demand picks up again once the pandemic threat eases.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.