Saudi Arabia is ready to flood the oil market. The world’s leading crude oil exporting country has in fact decided to increase its daily production by 2.5 million barrels a day to 12.3 m bpd.
Riyadh has made this drastic decision in order to cope with the escalation of tension with Russia. Over the weekend Moscow had refused to adhere to the cuts proposed by OPEC, irritating Saudi Arabia which decided to open its taps and offer oil at low cost in order to steal traffic quotas (in Europe but not only) from the former Soviet Republic.
The war between the two countries will have – and is already having – repercussions on maritime transport, helping to drive up the freight rates of mega tankers, the so-called Very Large Crude Carriers.
Last Tuesday, the Arab state company, Bahri, chartered 10 VLCCs with the aim of loading more than 20 million barrels by the end of March. Negotiations for these ships have almost reached 200 thousand dollars a day. This is the case of the crude oil tanker Boston, built in 2012: Bahri will pay 197.5 thousand dollars a day for a charter from the Middle East Gulf to the Red Sea.
Overall, according to the Baltic Exchange, freight rates for VLCCs have risen to $60,000 a day.
Free falling oil prices are (with prices down by 31%, the biggest drop after the 17th January 1991 when the first Gulf War began), are once again making crude oil storage on tankers topical.
In February, Saudi Arabia exported 7.94 million barrels of crude oil a day, practically 80% of what the country produced (9.65m bpd). Riyadh’s announcement to intensify deliveries to customers by 25% starting from April 1st will help increase profits for VLCC, Suemax and Aframax shipowners, raising expectations for substantially higher freight rates.
Translation by Giles Foster