Kuwait Stops Crude Export To Us

07 October 2018 Business

Bloomberg last week published brief news with reference to Kuwait’s decision to stop selling crude oil to the US market. This was picked up by other agents, and eventually everybody started speculating about it and added more flavor to this news item. The fact is that Kuwait Petroleum Corporation (KPC) stopped its crude oil sales to the US for one simple reason – the US market is not attractive and offers very low profit margin.

Also, the US market is uncompetitive and unattractive when compared to other global markets such as Asia, Europe and Africa. Kuwait gains profit of more than $10 per barrel from them instead of the USA. Therefore, the choice was simple and the decision was easy; nothing more, nothing less.

In addition, Kuwait does not need to look for other markets, as its sales are fully committed. If any spare volume is available, then Kuwait will sell them at the most attractive prices, but certainly not to the US for low returns. Kuwait’s oil history is not very long. Gulf Oil was the first company to sign an oil agreement with Kuwait back in the early 1940s. It was reluctantly followed by BP.

However, not a single shipment of Kuwaiti oil went to the USA back then, as Gulf Oil shipped all of its Kuwaiti oil to Europe and Asia; and so did BP. The first oil shipment sent to the US was in late 1976 with small cargoes of clean products sent to the East Coast.

However, the relations did not last for long. The year 1984 witnessed the start of the oil relations between Kuwait and the USA with the shipment of large volumes reaching more than 500,000 barrels of Kuwaiti crude oil per day to more than ten US companies. All the deliveries were made on flagged Kuwaiti vessels. Eventually, selling Kuwaiti oil to the US did not seem attractive and we decided to slowly phase out of it and seek markets with higher returns such as Asia and Europe.

Also, the legislation related to marine affairs and pollution repelled Kuwaiti tankers from using American waters, which proved to be another reason to avoid the trade altogether. Following the sale of our crude oil, Kuwait also started selling Liquefied Petroleum Gas (LPG) based on longterm contracts but it unfortunately did not last long again because of the emergence of shale gas, which made our gas prices very unattractive.

However, even though we lost both crude oil and gas sales purely on commercial grounds, we managed to find another attractive market, so both sides were happy with the final outcome. At present, there are no financial benefits in selling to the US market, as the Asian outlets give us much attractive profits – better than $10 per barrel. At the same time, demand is strong due to the possible boycott on Iranian crude oil. US is becoming independent with its own domestic oil especially its shale oil. It could become the second highest, if not the highest, oil producing country by the end of 2030. Therefore, refraining from the US market was based on our own commercial decision. Bloomberg should have asked or investigated the matter before making it public.

 

SOURCE : ARABTIMES

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