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Saudi Production Cuts Erase Oil Tanker Earnings

Reduced availability of seaborne crude oil shipments from the world’s top oil exporter, Saudi Arabia, and a rising number of oil tankers available on the market, have hit the earnings of supertanker owners so much that some are losing money on shipping crude from the Arab Gulf to China, shipbrokers and analysts tell Bloomberg.

Saudi Arabia’s surprise announcement earlier this month that it would cut an additional 1 million barrels per day (bpd) from its crude oil production in February and March has reduced the crude shipments in the market for supertankers, vessels capable of carrying up to 2 million barrels of crude oil each.  

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Moreover, the recent significant decline in global floating oil storage has made more supertankers available on the market for shipping crude on the main oil trade routes. The recent rally in oil prices has deepened the backwardation, the state of the market signaling tighter supplies with prompt prices higher than those further out in time. This has removed the ‘contango play’ incentive for traders holding oil in floating storage, while healthy demand in Asia provided an outlet for the stored oil.

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Saudi Arabia has also announced reductions in crude oil volumes to be supplied to at least nine clients in Asia and Europe following its decision to add another 1 million bpd to its OPEC+ production cut quota to prop up prices. The Kingdom is said to be slashing supplies to some refiners by between 20 and 30 percent, according to Bloomberg.

As a result of the lower crude availability amid increased availability of supertankers, the owners of supertankers are losing $736 every day while they deliver oil from Saudi Arabia to China, Bloomberg says, citing data from the Baltic Exchange in London.

Negative earnings could be preferable for some tanker owners, Bloomberg notes, because keeping the vessels at anchor also costs money, while a tanker in a prolonged period of inactivity could lose its approval for charter.

By Charles Kennedy for Oilprice.com

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