Saudi Shift May Impact Refined Products Market
- A convergence of motivations lead to OPEC+ output hike
- Even well-disciplined cartels are subject to laws of supply & demand
- Aramco refined product exports grow in importance to the market
- Shoulder season maintenance affects natural gas output and exports
Sincerely,
David Thompson, CMT
Executive Vice President
Powerhouse
(202) 333-5380
The Matrix
In late April, Saudi Arabian officials briefed key industry players to inform them that the kingdom was unwilling to support oil prices with further restrictions of supply and could handle a period of prolonged lower oil prices. In May, Saudi Arabi directed a larger-than-expected output hike for the cartel that pushed WTI prices below $60 per barrel.
POWERHOUSE reasoned that the Saudis move was motivated primarily by three factors.
- Remind fellow cartel members that they go against Saudi wishes at their peril
- Regain market share from U.S. shale producers
- Remain in President Trump’s favor by supporting his policy aim of lower energy costs
The market sell-off illustrates that even a cartel as strong as OPEC+ is still subject to market forces. As OPEC+ members were able to increase supply, the price fell.
It is very important to note that the cartel’s quotas apply to crude oil production. Saudi Aramco, which now faces investor scrutiny as a publicly traded company, has made a pronounced shift in strategy in recent years designed to support their revenues even during times of falling crude prices. Aramco now operates nine domestic refineries with 3.33 million barrels per day (bpd) of throughput capacity and refineries abroad with another 4.3 million bpd of refining capacity.
With strong crack spread values, Saudi Arabia’s refineries processed a 2.94 million bpd in March 2025. Saudi refined product exports hit a record high level as a result.
Saudi Aramco’s refining muscle affords it a great deal of flexibility. It adds credence to their claim of being able to withstand lower for longer crude oil prices – as long as crack spread values remain high. Market participants must also be aware of an aggressive and very capable player on the supply side of the refined products market.
Supply/Demand Balances
Supply/demand data in the United States for the week ended May 16, 2025, were released by the Energy Information Administration.
Total commercial stocks of petroleum increased (⬆) 4.9 million barrels to 1.2231 billion barrels during the week ended May 16th, 2025.
Commercial crude oil supplies in the United States were higher (⬆) by 1.3 million barrels from the previous report week to 443.2 million barrels.
Crude oil inventory changes by PAD District:
PADD 1: Up (⬆) 0.6 million barrels to 8.6 million barrels
PADD 2: Down (⬇) 0.8 million barrels to 106.5 million barrels
PADD 3: Down (⬇) 0.1 million barrels to 251.3 million barrels
PADD 4: Up (⬆) 0.4 million barrels to 25.2 million barrels
PADD 5: Up (⬆) 1.0 million barrels to 51.5 million barrels
Cushing, Oklahoma, inventories were down (⬇) 0.5 million barrels to 23.4 million barrels.
Domestic crude oil production increased (⬆) 5,000 barrels per day from the previous report at 13.392 million barrels per day.
Crude oil imports averaged 6.089 million barrels per day, a daily increase (⬆) of 247,000 barrels. Exports increased (⬆) 138,000 barrels daily to 3.507 million barrels per day.
Refineries used 90.7% of capacity; an increase (⬆) of 0.5% from the previous report week.
Crude oil inputs to refineries increased (⬆) 89,000 barrels daily; there were 16.490 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, increased (⬆) 83,000 barrels daily to 16.693 million barrels daily.
Total petroleum product inventories increased (⬆) by 3.6 million barrels from the previous report week, up to 779.9 million barrels.
Total product demand increased (⬆) 590,000 barrels daily to 20.031 million barrels per day.
Gasoline stocks increased (⬆) 0.8 million barrels from the previous report week; total stocks are 225.5 million barrels.
Demand for gasoline decreased (⬇) 150,000 barrels per day to 8.644 million barrels per day.
Distillate fuel oil stocks increased (⬆) 0.6 million barrels from the previous report week; distillate stocks are at 104.1 million barrels. EIA reported national distillate demand at 3.412 million barrels per day during the report week, a decrease (⬇) of 365,000 barrels daily.
Propane stocks rose (⬆) 2.7 million barrels from the previous report to 53.1 million barrels. The report estimated current demand at 841,000 barrels per day, an increase (⬆) of 425,000 barrels daily from the previous report week.
Natural Gas
Spring cleaning (or maintenance) isn’t limited to dusty houses and refineries. It’s also the time that energy companies do work on natural gas pipelines. Analysts peg U.S. natural gas output at 105 billion cubic feet per day (bcf/d) so far in May. This is down from a monthly record of 105.8 bcf/day in April.
Industry sources suggest the repair work on Kinder Morgan’s Permian Highway, a pipeline that moves 2.7 bcf/d from west Texas to the Gulf Coast, is the cause of this drop. Similarly, LNG feedgas to the eight largest LNG export facilities in the U.S. also fell in May as compared to April as Cameron LNG’s 2.0 bcf/d plant in Louisiana was undergoing maintenance.
According to the EIA:
- Net injections into storage totaled 120 Bcf for the week ended May 16. The five-year (2020–24) average net injections are 87 Bcf and last year’s net injections were 78 Bcf during the same week. Working natural gas stocks totaled 2,375 Bcf, which is 4% higher (at 90 Bcf) than the five-year average and 12 % lower (at 333 Bcf) than last year at this time. This week makes the fourth consecutive week of net injections of 100 Bcf or greater for the Lower 48 states.
- According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net injections of 108 Bcf to 130 Bcf, with a median estimate of 120 Bcf.
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