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Oil Tanker Owners Pay to Move Crude in Wake of Supply Cuts

Oil Tanker Owners Pay to Move Crude in Wake of Supply Cuts

Supertankers delivering 2-million-barrel shipments of the kingdom’s oil to China are losing $736 a day for the privilege, according to data from the Baltic Exchange in London on Tuesday. While owners might, in practice, be able to mitigate such losses by ordering captains to sail the vessels slower, the reality is that some ships are losing money on Middle East-to-Asia deliveries, according to Halvor Ellefsen, a shipbroker at Fearnleys.

“Even the most economical ships out there are struggling to get positive numbers,” he said. “It’s carnage right now.”

While tanker rates weren’t particularly strong up to the end of last year, they weren’t disastrous either. What really seems to have tipped the balance is when Saudi Arabia, wary of oil demand risks posed by Covid-19, announced that it would unilaterally cut 1 million barrels a day of production to support crude prices. That removed a big chunk of seaborne shipments in a market where cargoes were already curtailed.

It also came at a time when the supply of ships was being bolstered. Huge numbers of tankers had been used to store crude at sea when an oil market glut built up last year, and that’s now tumbling. Since its peak last year, about 132 million barrels of oil are no longer being stored at sea, enough to fill 66 supertankers, Vortexa data shows.

Traders also reported lower demand over the past few days from some buyers in Asia where refineries will soon start carrying out seasonal maintenance programs and therefore need fewer crude cargoes.

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Iran Starts Air Force Drills Near The World’s Crucial Oil Chokepoint

Iran Starts Air Force Drills Near The World’s Crucial Oil Chokepoint

Iran Airforce

Iran’s Air Force and the Islamic Revolution Guards Corps began on Friday fighter jet drills over the waters near the world’s most important oil chokepoint, the Strait of Hormuz, Iran’s IRNA news agency reported on Friday.

Aircraft including nine F-4, six Sukhoi, and four Mirage started the war games in the Persian Gulf and the Sea of Oman waters, IRNA said.

The maneuver is a warning that Iran’s enemies will face a “stern response” if they show ill-will toward Tehran, the AP quoted the official Iranian news agency as saying.

Earlier this year, Iran threatened to close the Strait of Hormuz for all tanker traffic if the U.S. drives Iranian oil exports to zero.

As the first round of U.S. sanctions on Iran kicked in last month and the second round of sanctions—including on Iranian oil exports—is set to snap back in early November, the Islamic Republic has recently stepped up rhetoric about controlling the most vital oil flow chokepoint in the world.

U.S. Secretary of State Mike Pompeo rebuffed Iran’s claims saying in a statement posted on Twitter: “The Islamic Republic of Iran does not control the Strait of Hormuz.”

The Strait of Hormuz is the world’s most important chokepoint, with an oil flow of 18.5 million bpd in 2016, the EIA estimates. The Strait connects the Persian Gulf with the Gulf of Oman and the Arabian Sea and is the key route through which Persian Gulf exporters—Saudi Arabia, Iran, Iraq, Kuwait, Qatar, the UAE, and Bahrain—ship their oil. Only Saudi Arabia and the UAE have pipelines that can ship crude oil outside of the Persian Gulf with additional pipeline capacity to bypass the Strait of Hormuz, which is a route of more than 30 percent of the daily global seaborne-traded crude oil and petroleum products and more than 30 percent of the liquefied natural gas (LNG) flows.

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Saudi oil shipment halt: A potential watershed in the Yemen war

Saudi oil shipment halt: A potential watershed in the Yemen war

A spike in oil prices as a result of a temporary halt in shipments through the strategic Bab el Mandeb strait may be short-lived, but the impact on Yemen’s three-year-old forgotten war is likely to put the devastating conflict on the front burner.

The halt following a Saudi assertion that Iran-backed Houthi rebels in Yemen had attacked two Saudi oil tankers traversing the waterway drives home the threat the conflict poses to a chokepoint in international trade and the flow of Gulf oil to world markets. The Houthis said they had attacked a Saudi warship rather than oil tankers.

An estimated 4.8 million barrels of oil are shipped daily through Bab al Mandeb that connects the Red Sea with the Arabian Sea off the coast of Yemen, Djibouti, and Eritrea.

The halt of oil shipments could provoke an escalation of the conflict with external powers intervening in a bid to assist Saudi Arabia and the UAE in defeating the Houthis and dealing a blow to Iran’s regional presence.

By the same token, the halt potentially offers Saudi Arabia and the United Arab Emirates an opportunity to focus international attention on resolving a civil war aggravated and turned into a regional conflict by the two Gulf states’ military intervention in March 2015.

Rather than proving to be a swift campaign that would have subdued the Houthis, the intervention has turned into a quagmire and a public relations fiasco for Saudi Arabia and the UAE.

International criticism of their conduct of the war is mounting as a result of its devastating human cost. Voices in the US Congress, the British parliament and other Western legislatures as well as human rights groups calling for a halt of arms sales to Saudi Arabiaare growing ever louder.

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