A strategy by Saudi Arabia, the world's largest crude-oil exporter, to cut supplies of the fuel to the U.S. threatens to sap the revenue of supertanker owners.
A strategy by Saudi Arabia, the world's largest crude-oil exporter, to cut supplies of the fuel to the U.S. threatens to sap the revenue of supertanker owners. The cost of hiring supertankers moves inversely to the discount or premium Saudi Arabia charges for crude relative to the U.S. benchmark West Texas Intermediate grade. The desert kingdom has raised the premium to a record $1 a barrel to deter U.S. refiners from importing the fuel and spur them to absorb a domestic surplus that is depressing oil prices.
"We might have fairly dismal conditions over the next couple of months," Finn Engelsen, managing director of Oslo- based shipbroker Lorentzen & Stemoco AS, said by phone. The tanker market may "sink" as Saudi Arabia seeks "to cut off exports or to discourage anybody from taking the barrels."
The premium, the first in at least a decade, will ensure Saudi Arabia is the biggest contributor to a cut in Middle East shipments to the U.S. of 500,000 barrels a day, Engelsen said. It will lower demand for tanker capacity by as much as 7 million deadweight tons, or about 5 percent of the fleet, he added.
Since January 1999, Saudi Arabia has charged an average of $4.81 a barrel less than West Texas Intermediate to its prized U.S. client.
The cost of supplying Middle East crude to the U.S. climbed to a record $8.29 a barrel in December 2007, according to data Bloomberg compiled. That was the same month that Saudi Arabia offered record discounts on its Arab Light crude oil.