Kuwaiti crude exports to US at record low

While Kuwait’s crude exports to the United States, which never were substantial, have significantly declined, they are unlikely to end completely.
Sunday 04/11/2018
Dedicated supplier. A general view of the Shuaiba oil refinery in Kuwait. (AFP)
Dedicated supplier. A general view of the Shuaiba oil refinery in Kuwait. (AFP)

For the first time in 25 years, Kuwait did not export any crude oil to the United States over a 4-week period. The development should not be perceived as a political slight by the Gulf producer. Rather, economic considerations by Kuwait, booming US domestic oil production and US sanctions against Iranian oil contributed to the absence of Kuwaiti crude exports to America.

Kuwaiti oil is not totally disappearing from the United States but the volumes will probably be marginal because the Gulf producer finds it financially advantageous to place extra barrels eastward.

Since the first Gulf War, Kuwait has been a dedicated crude supplier to the United States, consistently among the top ten exporting countries to which it has turned to help meet domestic consumption needs.

As Kuwait struggled to recover oil production and exports after its fields and facilities were damaged by the Iraqi military, the United States was an early beneficiary of Kuwait’s resumed crude operations.

Data collected by the US Department of Energy’s Energy Information Administration (EIA) indicate that Kuwait’s crude deliveries to the United States exceeded 450,000 barrels per day (bpd) in the latter half of 1993. In October 1993, US imports of Kuwaiti crude hit a peak of 526,000 bpd.

Kuwait gradually slipped to tenth on the US list of top crude suppliers. US imports of Kuwaiti crude dropped more than 50% over five years from 303,000 bpd in 2012 to 144,000 bpd last year.

EIA tracking showed that US imports of Kuwaiti crude averaged approximately 102,000 bpd in the first seven months of 2018. However, it was the 4-week period that ended September 28 that showed zero imports of Kuwaiti crude and caught people’s attention.

Subsequent EIA tabulations covering 4-week periods for October 5, October 12 and October 19 indicate a modest return of Kuwaiti oil, with an average of 35,000 bpd.

State oil firm Kuwait Petroleum Corporation called reports of zero exports to the United States “inaccurate and [they] do not explain the implications of a reduction in the rate of exports between the two countries.”

The Kuwaitis understandably may not have wanted public attention being paid to the loss of Kuwaiti crude in the United States, temporary as it may have been.

For decades, the reasoning for dedicated oil sales to the United States for Gulf producers such as Kuwait and Saudi Arabia has been politically motivated as much as economically driven. By keeping the oil flowing consistently to the US market, Gulf states felt a measure of security that Washington would be quick to militarily intervene should a crisis arise.

Saudi Arabia diligently worked for decades to maintain its position as the top crude supplier to the United States. Riyadh regularly sent more than 1.5 million bpd to the US market before deciding in the mid-2000s to focus on the more lucrative Asian market and opt for being merely one of the top crude sellers to the United States.

Kuwait, which has a crude production capacity of around 3.15 million bpd, also shifted its export strategy to favour the oil-hungry Asian markets as its capacity grew in recent years. Last year, approximately 80% of Kuwait’s crude exports were shipped to Asian customers, with the remaining 20% split between Europe and the United States.

Several factors likely influenced the slide in US imports of Kuwaiti crude. Thanks to the sustained boom in domestic output, US net oil imports have been falling. The EIA predicted that the country’s net imports will fall a further 60% this year compared to 2017 to the lowest levels since 1958.

US refineries still require imports of heavy crude but a supplier such as Kuwait is facing stiffer competition from exporters closer to the US market.

Though the United States has been exporting crude to Asia, market economics provide more incentive for Asian buyers to look for less costly alternatives from Kuwait and other suppliers. Several of Iran’s Asian customers reduced or stopped purchases of Iranian crude prior to the November 4 imposition of US sanctions targeting Tehran’s oil, opening supply gaps that Kuwait has helped plug.

While Kuwait’s crude exports to the United States, which never were substantial, have significantly declined, they are unlikely to end completely. If nothing else, the Kuwaitis wish to ensure that this important economic connection to Washington remains. However, the diminished role of US imports of Kuwaiti oil suggests that the Gulf producer is more focused on the bottom line than about a theoretical guarantee of US security.