Saudi Arabia is considering rerouting millions of barrels of oil on board tankers sailing to the United States if President Donald Trump decides to block imports of crude from the kingdom.
Some 40 million barrels of Saudi oil are on their way to the US and due to arrive in the coming weeks, piling more pressure on markets already struggling to absorb a glut of stocks.
Washington is considering blocking Saudi shipments of crude oil, or putting tariffs on those shipments, adding to difficulties for the cargoes now on the water.
Saudi Arabia had first tried to seek storage options for the oil now at sea.
Many tanker owners, however, were unwilling to agree to such a change in plans as it would have meant stranding tankers, with the prospects of finding a buyer quickly grim.
Saudi Arabia could reroute the cargoes elsewhere if the US halts crude imports from the kingdom.
Oil traders from European and Asian markets said there was an expectation that the Saudis would divert the cargoes to other markets if a ban is imposed.
“Europe looks full, but surely if the Saudis offer it at really cheap levels, buyers would take it”.
US Senator Ted CRUZ who represents the heavily oil-revenue dependent state of Texas said on Twitter on April 21: “My message to the Saudis: TURN THE TANKERS THE HELL AROUND.”
19 supertankers – each capable of carrying 2 million barrels of oil – were sailing to key US terminals, especially in the US Gulf. “This could prove to be a very expensive exercise for Saudi Arabia as whatever happens with the cargoes and the tanker owners will need to be paid demurrage (for the ships) and those costs would have been locked in when the market was higher to secure the charters,” a shipping source said.
“While this is an expensive gamble for the Saudis, shutting off production would have been proved even more costly.”
Demurrage was estimated at $250,000 a day based on rates last month when a lot of vessels were booked.
Wall Street Journal reported this week that at least one in every ten Very Large Crude Carriers capable of holding up to 2 million barrels of oil is now serving as floating storage, with many of them full of unsold Saudi oil.
The volume of Saudi crude on the way to the United States was seven times higher than the typical monthly intake of Saudi oil in 2019 said The Wall Street Journal “U.S. refiners bought the oil not just because of the low price, but also because it is a heavier crude than what is produced in the U.S., and this heavier crude is what the U.S. refineries were built to run to produce products like gasoline, jet fuel, and diesel” said Joe Mc MONIGLE, a former Energy Department chief of staff in the George W. BUSH administration.
Some of the incoming oil is under contract by U.S. refiners, and many of the contracts were signed prior to the oil market crisis.
“Trump can probably convince Saudi Arabia, by the force of his will, to get that oil sent somewhere else” said Jim KRANE, energy geopolitics fellow at Rice University’s Baker Institute.
“Even though they have to put up with this unseemly protectionism, that is a small issue when compared to the diplomatic backing we provide them through good times and bad. That U.S. friendship is still super important to Riyadh. In the big scheme, the Saudis would show some flexibility on this.”
This article was edited using the data from the aljazeera.com, oilprice.com, and washingtonexaminer.com.
Source of the photo: www.aa.com.tr.