Flotilla of Saudi Oil Tankers Near the Suez Shrinks a Little

(Bloomberg) —

A cluster of Saudi Arabian oil tankers that are idling in the Red Sea is showing tentative signs of shrinking, suggesting whatever issue caused the buildup might be starting to abate.

At one stage over the past week, as many as 9 Saudi and two Chinese supertankers were anchored near Ain Sukhna, a terminal in Egypt from where oil can be piped to storage tanks on the Mediterranean Sea. That’s now dropped by two, including the Saudi carrier that had been waiting longest, which now moored at the facility.

Saudi officials haven’t commented on what caused the buildup, but the most likely explanation would be a lack of storage. It also comes at the end of a period in which oil refineries in Europe and North America traditionally undergo routine maintenance, eroding their demand for barrels. The kingdom is cutting its crude production to prop up oil prices, and pledged a further unilateral reduction next month.

Normal practice would see the ships unload their consignments at a terminal at the southern end of Egypt’s Suez Canal before sailing back to the Persian Gulf or Saudi Arabia’s Red Sea oil terminal at Yanbu. 

In recent times, though, normal practice has gotten snarled, holding up as many as 22 million barrels that the refineries could really do with. That dropped on Wednesday when one waiting ship discharged, and again on Thursday when the Wafrah, which had been anchored since June 1, moored. The two Chinese-owned ships arrived in May and are still there.

Here’s what is known about the ships and why they’re important to the market.

Seven of the nine vessels are owned by the National Shipping Company of Saudi Arabia, known as Bahri, the other two are owned by Taiping & Sinopec Financial Leasing Co. 

VLCCs can either discharge full 2 million barrel cargoes at Ain Sukhna, or they can offload about half of that volume to reduce their draft sufficiently to let them pass through the Suez Canal. 

Most Saudi Arabian supertankers typically deliver to Ain Sukhna without transiting the canal.

Mediterranean Surge

It seems unlikely that refinery maintenance caused the buildup.

Shipments from Sidi Kerir, the port in Egypt’s Red Sea, have risen to more than 830,000 barrels a day in the 20 days through this month, according to Vortexa data. That’s the highest volume from the terminal since April 2020, when Saudi Arabian exports soared before OPEC+ agreed to production cuts. 

The clustering of Saudi tankers coincides with the strengthening of the Mediterranean physical oil market, which has itself recently lost a large amount of oil supply from northern Iraq that’s not dissimilar to the grade that Saudi Arabia can bring in. 

The build-up is coming just weeks ahead of a further 1 million barrel a day output cut by the kingdom, due to be implemented in July.

Tanker tracking suggests the cluster is unusually large. The amount of oil stored at sea off the coast of Egypt hasn’t been this high since at least 2016, according to Kpler data.

Despite the build up, Saudi Arabia’s total crude exports fell in May. The Kingdom shipped 7.5 million barrels a day in April, but that fell to 6.6 million barrels a day last month, and a similar flow has been observed so far this month, according to Kpler data.

–With assistance from Alex Longley, Sherry Su and Matthew Martin.

© 2023 Bloomberg L.P.