An armada of tankers filled with Saudi Arabian crude steaming toward the U.S. threatens to prevent America’s oil glut from draining, which is only just beginning.
Over 30 ships are set to arrive on the U.S. Gulf Coast and West Coast during May and June, according to ship tracking data compiled by Bloomberg. The more-than 50 million barrels of Saudi crude on the water threaten to upend a positive supply development: U.S. crude stockpiles declined for the first time since January and inventories at the Cushing, Oklahoma storage hub contracted by the most in months.
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The U.S. is facing a tsunami of Saudi oil – the lingering effect of a price war between Riyadh and Russia back in March – that led the Middle East nation to slash pricing of its grades to multi-year lows and flood the market. The wave of supply occurred even as the Covid-19 pandemic was beginning to rapidly weigh on petroleum demand. A fifth of global consumption is still seen disappearing this quarter alone.
“The expected Saudi deliveries could push U.S. inventories back to builds depending on their timing,” said Sandy Fielden, director of oil and products research at Morningstar Inc. “If the shipments land at a rate that isn’t balanced by falling production or an uptick in exports, then we’ll see a domestic build.”
The oil industry has been on edge for months with onshore and offshore storage capacity levels tested worldwide due to ballooning oil inventories spurred by the demand slowdown. On the U.S. West Coast, crude stockpiles are less than 5 million barrels short of reaching the region’s storage capacity.
While data from the Energy Information Administration this week showed U.S. crude production dropped to the lowest in nearly a year, there are still volumes being produced that may have to jostle with new Saudi deliveries for storage space.
“If all the Saudi tankers unload, the crude they carry will offset during May almost all of the production reductions from March levels, effectively maintaining the current high storage filling rates,” Paola Rodriguez-Masiu, a senior oil market analyst at Rystad Energy, said in a note.
Very Large Crude Carries, or VLCCs, heading for the U.S. Gulf include Shaybah, Hong Kong Spirit and Dalma, ship tracking data show. Tankers en route to the Pacific Coast include Sea Jade and Sikinos I. The vessels, mainly supertankers, will deliver over 45 million barrels of Arabian crude to Gulf buyers and at least 7 million to Pacific users. The volume of oil arriving in May and June is equal to nearly a third of all Saudi crude delivered to the U.S. last year.
As a result of the surge in shipments, delays in discharging Saudi oil have become common. For some ships, it has taken about two weeks to unload cargoes, about twice the usual time to finish the job as small ships that are needed to unload have become increasingly scarce.
So far this year, weekly Saudi crude imports peaked at over 600,000 barrels a day in March. Shipments had been on a steady downtrend since late 2018 in response to curtailment agreements with OPEC and its allies.
While West Coast crude stockpiles are currently at 58.2 million barrels, nearing full capacity, the inventory picture is brighter on the U.S. Gulf Coast, America’s refining belt. Crude inventories there are 88 million barrels shy of reaching total storage capacity.
Oil imports from Saudi Arabia are not set to slow down anytime soon even though the kingdom deepened its production cuts and raised prices for June supply, with demand still coming from refiners that process the heavier crude.
(Updates with details on Saudi crude imports in tenth paragraph.)
–With assistance from Javier Blas and Brian Wingfield.