Record Saudi oil inventory seen tied to new refinery, not global glut

Saudi Arabia’s domestic crude oil inventories jumped to a record above 300 million barrels in May, a rise that likely reflects the operational demands of a major new refinery rather than another sign of a global supply glut.

The 9.3 million-barrel increase in stockpiles, the biggest one-month build in more than three years, partly explains an earlier reported drop in exports, which fell to their lowest in five months, according to official data supplied by Riyadh to the Joint Organisation Data Initiative (JODI).

Crude shipments from the world’s biggest exporter fell by 800,000 barrels per day (bpd) to just under 7 million bpd, despite record-high wellhead production, a drop mainly pinned on the summertime rise in oil-fired power plants to meet peak electricity demand as well as higher demand from refineries.

However, about 300,000 bpd of that decline ended up in domestic stockpiles, the data show, a fact that may fuel debate over whether a global supply glut is now backing up in the kingdom’s own tanks after already stretching U.S. inventories to modern-day record highs earlier this year. U.S. stocks rose by more than 100 million barrels from January through April.

Analysts said the Saudi build-up most likely reflects the changing domestic oil market, not a global imbalance.

“Some of this is operational,” said Amrita Sen, chief oil analyst at Energy Aspects.

The kingdom needs a larger “buffer” to ensure smooth operations at the 400,000 barrel per day (bpd) Yasref refinery joint-venture, which was ramping up earlier this year and reached full capacity at the end of June, she said.

“Logically, with internal demand up over 300,000 bpd, and exports down but no shortage of customers, higher inventories would then likely be voluntary and Yasref is the most likely candidate,” Paul Horsnell, global head of commodities research at Standard Chartered, said in an email.

Crude oil stockpiles have risen by nearly 25 million barrels, or about 9 per cent, over the past year, according to the JODI data. In May, refinery runs reached a record-high 2.4 million bpd, up about 20 per cent from a year ago.

In addition, Saudi Arabia may have been building up stockpiles ahead of the summer, anticipating a spike in seasonal demand. Direct-burn crude use rose to 677,000 bpd in May from 358,000 bpd in April, but last year reached as high as 900,000 bpd. Its stockpiles have doubled since 2007 due to higher consumption.