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Oil tanker owners and shipbrokers are set to suffer longer than expected from the massive OPEC+ production cuts after the coalition surprised the oil and tanker markets on Thursday by deciding to keep oil production flat in April.
The cuts from the OPEC+ group were already hurting the oil tanker market at the start of this year amid reduced availability of seaborne shipments from the world’s top oil exporter, Saudi Arabia, and a rising number of oil tankers available on the market after months of serving as floating storage.
As early as in January, the cuts and the oversupply of tankers had hit the earnings of supertanker owners so much that some were losing money on shipping crude from the Arab Gulf to China, shipbrokers and analysts told Bloomberg at the time. Saudi Arabia’s surprise announcement in January that it would cut an additional 1 million barrels per day (bpd) from its crude oil production in February and March reduced crude shipments in the market for supertankers, vessels capable of carrying up to 2 million barrels of crude oil each.
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 rally in oil prices has deepened the backwardation, which has removed the ‘contango play’ incentive for traders holding oil in floating storage, while demand in Asia provided an outlet for the stored oil.
This week’s decision from OPEC+ to keep April’s production basically unchanged—with small exemptions for Russia and Kazakhstan—and Saudi Arabia extending its extra 1-million-bpd cut through April further hurt tanker owners and delay the recovery of tanker rates.
“The mood is depressed,” Halvor Ellefsen, a tanker broker at Fearnleys, told Bloomberg, commenting on the surprise OPEC+ move. “A continuation of the cuts is the last thing we needed.”
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com