Freight hike causes Saudi crude buyers to cancel at least seven supertankers
US buyers of Saudi Arabian crude oil cancelled at least seven April-loading tankers after a jump in freight costs, which is likely to result in lower-than-expected shipments from the world’s top exporter, an industry insider said.
The move shows how some buyers are not rushing to take extra oil despite a slide in prices this month to below $16 a barrel, (the lowest this century), as demand has collapsed following government measures to contain the spread of the coronavirus.
In March, Saudi Arabia had cut its official selling prices for April crude and vowed to boost exports after a supply cut deal by the Organization of the Petroleum Exporting Countries and rivals like Russia collapsed.
But tanker rates soared and Saudi Arabia told buyers it would cut compensation payments for freight costs because of extraordinary conditions in the freight market.
Freight costs jumped globally because more ships were needed to deliver oil after Saudi Arabia and other Middle East producers ramped up output after the talks to extend the OPEC-led production cut deal broke down at the start of March.
This killed the economics of importing the extra barrels, one source said: “US refiners gave back at least seven VLCCs because the freight protection was lifted. If they had got the freight protection, they would have taken these barrels.”
Even after the cancellations, the volume of April-loading Saudi crude heading to the United States is still set to increase, the source said. Saudi exports to all destinations are expected to rise this month.
The changes in supply terms were seen as likely to lead to cancellations of April cargoes by buyers across the world as they were not expecting to bear transport costs in full.
Iraq, OPEC’s second biggest producer, also informed customers it was unable to compensate for the jump in freight costs. OPEC and other producers this month reached another supply cut deal to try to prop up oil prices that takes effect from May 1.
For more information visit www.saudiaramco.com
5th May 2020
