Persian Gulf Tanker Glut Shrinks as U.S. Seen Seeking More Crude
By Rob Sheridan - Mar 12, 2013 9:02 AM ET
The glut of supertankers competing for 2 million-barrel cargoes of Persian Gulf oil declined amid speculation charters to the U.S. are rising.
There are 20 percent more very large crude carriers available in the Persian Gulf over the next 30 days than there are probable cargoes, according to the median estimate of seven shipbrokers and owners in a Bloomberg News survey today. That’s five percentage points fewer than last week and the smallest excess since Feb. 26.
Bookings for Persian Gulf oil to the U.S. rose to 31 million barrels last week, the highest level since May, Fotis Giannakoulis, a New York-based analyst at Morgan Stanley, said in an e-mailed report yesterday. The charters are more than twice the weekly average this year, he said.
“There seems to be more westbound interest drawing crude cargoes to the U.S. Gulf,” Halvor Ellefsen, a shipbroker at Galbraith’s Ltd. in London, said by e-mail. “Refineries in the region are returning from maintenance.”
The number of vessels booked in the Persian Gulf to haul crude in February dropped to 103 from 123 in January, according to data from Marex Spectron Group, a London-based commodities brokerage. Last month’s tally was the smallest since November 2010, Marex Spectron data show.
The combined carrying capacity of the world VLCC fleet will expand 5.1 percent this year, just less than demand growth of 5.2 percent, according to data from Clarkson Plc (CKN), the world’s biggest shipbroker.
Daily earnings for the supertankers plunged 75 percent to $11,656 in the past 12 months, according to Clarkson. They were $7,518 in the week ended Feb. 15, the lowest since September 2011. Frontline Ltd., the VLCC operator led by billionaire John Fredriksen, said Feb. 22 it needs daily returns of $24,200 to break even.
Refiners have recently shut down to convert from producing home heating oil #2 for gasoline and changing blends from winter to summer mix. So its expected a lot of them will come back on line nearly the same time producing the new blends for summer driving.
There is one other aspect, the Saudi Oil Company Aramco just did a joint project in doubling the refinery capacity at a Port Arthur Texas refinery. Apparently increasing the output of an existing refinery goes through less hoops than attempts to get permits to build a new refinery. From what I read there is not enough added capacity of North Dakota and Texas new find oil fields to fully feed that new Aramco expansion, hence they will need to ship Saudi oil to fill up the full inflows required for full scale production.
I have some speculation as why Aramco did the Port Arthur Texas expansion, and it has to do with the fact Texas is business friendly as apposed to the Bolsheviks in California and elsewhere. Also with the turbulance in the world, the Saudi's probably view Texas (with the Texas Rangers) as a much more safer place to refine crude oil. Saudi's who get educated at the best univerisites in the world, are pragmatic as well as realistic. With a lot of trouble brewing in the middle east and the value added by the refinery business, it only makes sense to refine the product in Texas which is close to some of the gateways of the U.S. (I-10, I-20, I-30, and I-40 as well as many others (I-35, I-38 as an example).
Also currently BNSF and UNP railroads each each burn 4,000,000 gallons of diesel #2 (home heating oil) per day. Dallas-Ft. Worth are some of their major railway hubs, along with all the Golf connections to petro-chemical. Note: Aramco announced they intend to get heavily involved in petrochemical business, more value added. So I think we'll see more crude oil imports in spite of public opinion.
The politics are driving the economics in this. West Texas Intermediate, WTI, is a whole lot cheaper than Brent right now. By law, an oil company cannot ship crude out of the US, but, they can ship out refined product. So, crude produced in the US is cheaper than most other places, most certainly Europe, because we are making so much of it, and production is growing. So, people are opening up refinery capacity as much as possible, then using US crude to make diesel, mostly, and shipping it to Europe and making a ton of money on it. This shipping of refined product overseas is the only thing holding our oil prices up so high right now. At least for WTI. Until they get all the transport bottlenecks under control oil prices should stay about where they are.
But as the de-bottlenecking continues, pipelines are opened up, more crude rail cars are built, more refinery capacity is added, we may get to a point where the price of oil actually floats back up. As the refiners have a lot more access to domestic crude, they may choose to sell more of it overseas than here at home.
There are lots of dynamics going on here.
I would like to see the government set a maximum amount of refined product a refiner can ship overseas. That would keep gas and diesel prices lower here in the states, and help us with our own economy.