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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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OPEC Agrees To Extend Oil Supply Cuts Until End Of 2018: Bloomberg
OPEC Agrees To Extend Oil Supply Cuts Until End Of 2018: Bloomberg
With OPEC delegates sequestered in a Vienna conference room, as they negotiate the proposed 6-9 month production cut extension, at least one appears to be leaking the decision process to media outlets, because moments ago Bloomberg reported that OPEC ministers have agreed to extend their production cuts until the end of 2018 – agreeing with the Saudi-proposed 9 month extension – and discussions have now moved on to the mechanism that will be used to review the agreement in the middle of the year.
- OPEC AGREES TO EXTEND OIL SUPPLY CUTS TO END OF 2018: DELEGATE
- OPEC TALKS MOVED ON TO DETAILS OF MID-YEAR REVIEW: DELEGATE
These were some of the earlier headlines heading into the “announcement”:
- IRAQ SAYS RUSSIA JOINING IN EXTENDING OUTPUT CUTS TO END OF ’18
- SAUDI MIN: WE WILL REVIEW OUR EFFORTS IN JUNE NEXT YEAR
- SAUDI MIN: OPEC+ MUST DO MORE BECAUSE OVERHANG REMAINS
- AL-FALIH: IN 2Q AND 3Q, WE’LL SEE HEALTHY INVENTORY DRAWDOWNS
- IRAQ COMMITTED TO LEVEL OF OPEC CUTS
- U.A.E.: OPEC LOOKING FOR WIDER GROUP OF COUNTRIES TO JOIN CUTS
- IRAN SAYS NO DISCUSSION TO RAISE CUTS VOLUME BEYOND 1.8M B/D
While oil prices had traded near session highs ahead of the leaked announcement, they have failed to spike on the news and in fact Brent is back under $64, suggesting that, as Goldman predicted, a favorable outcome had been more than priced in, and now the details of the agreement will determine which way oil moves next.
As Citi wrote moments before the report, “it looks like a 6-9 month extension is the most common expectation amongst OPEC members, though the inclusion of caveats is looking increasingly likely.
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