Saudi Arabia has made good on its early-March promise to flood the world with oil, but with demand collapsing and storage filling fast, the world’s top oil exporter must now keep its unsold crude on supertankers at sea as no one is rushing to take delivery of oil they can’t process or store.
Around the world, at least one in every ten very large crude carriers (VLCCs)--each capable of holding 2 million barrels of oil--currently acts as a floating storage, oil officials from Saudi Arabia told The Wall Street Journal this week. Many of the supertankers carry Saudi crude, and some of it is not sold yet.
As buying interest in the oil industry is currently only focused on available storage capacity, not on crude oil, the early Saudi plan to go after its rivals’ market shares with aggressive price discounts and a fleet of more oil is backfiring while a large part of the world is under lockdown, refiners slash run rates, and storage fills up.
At the same time, the highest number of Saudi oil shipments in years are making their way to the United States this month, threatening to make an already dire situation in the U.S. oil industry even worse.
The tankers were loaded before OPEC+ struck a new agreement to take 9.7 million bpd off the market in May and June when Saudi Arabia had embarked on an aggressive price war for market share after the previous OPEC+ deal collapsed in early March.
However, three weeks later, the world demands anything but more oil—demand is crashing by 30 million barrels per day (bpd), and even the new production reduction agreement can’t do anything to erase the glut in April and the coming weeks.
“The fact is buyers don’t have storage so regardless of whatever level of output you want, there won’t be storage for it,” a senior Saudi Aramco executive told the Journal, adding that the Kingdom may have to shut part of its own production because there simply isn’t demand for crude oil.
By Tsvetana Paraskova for Oilprice.com
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The Saudis denied vehemently that US shale oil production was the target of their flooding the global oil market and yet the highest number of Saudi oil shipments in years are making their way to the United States this month, threatening to make an already dire situation in the US oil industry even worse. President Trump was even considering preventing them offloading their cargoes in the United States.
Moreover, it beggars belief how the Saudis though that they could flood an oil market already sagging under the weight of a glut estimated at 1.8 billion barrels between oil stored around the world and excess oil in the market and a global oil demand declining by 30 million barrels a day (mbd) with half the world’s population in lockdown. Haven’t they though that their rash decision will cost them several times more than Russia’s loss of revenues. Other than showing a lack of judgement, they shot themselves in the foot.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London