Buyers Cancel Saudi Crude Shipments After Tanker Rates Soar
U.S. buyers of Saudi Arabian crude oil cancelled at least seven April-loading tankers after a jump in freight costs, two industry sources said, likely to result in lower-than-expected shipments from the world's top exporter.
The move shows how some buyers are not rushing to take much extra oil despite a slide in prices this month to below $16 a barrel, the lowest this century, as demand has collapsed due to government measures to contain the spread of the coronavirus.
In March, Saudi Arabia had cut its official selling prices for April crude and vowed to boost exports after a supply cut deal by the Organization of the Petroleum Exporting Countries and rivals like Russia collapsed.
But tanker rates soared and Saudi Arabia told buyers it would cut compensation payments for freight costs because of extraordinary conditions in the freight market.
Freight costs jumped globally because more ships were needed to deliver oil after Saudi Arabia and other Middle East producers ramped up output after the talks to extend the OPEC-led production cut deal broke down.
This killed the economics of importing the extra barrels, one source said
"U.S. refiners gave back at least seven VLCCs because the freight protection was lifted," one of the sources, who spoke on condition of anonymity, said. "If they had got the freight protection, they would have taken these barrels."
Saudi state oil company Aramco did not immediately respond to a request for comment.
Even after the cancellations, the volume of April-loading Saudi crude heading to the United States is still set to increase, the source said. Saudi exports to all destinations are expected to rise this month.
The changes in supply terms were seen as likely to lead to cancellations of April cargoes by buyers across the world as they were not expecting to bear transport costs in full.
Iraq, OPEC's second biggest producer, also informed customers it was unable to compensate for the jump in freight costs.
(Additional reporting by Jonanthan Saul and Rania El Gamal Editing by Jane Merriman)