Flotilla of Saudi oil tankers near the Suez is shrinking a bit Ship’s crew

(Bloomberg) –

A cluster of Saudi Arabian oil tankers lying in the Red Sea is showing early signs of shrinking, suggesting the problem that caused the cluster may be beginning to subside.

At times over the past week, up to nine Saudi and two Chinese supertankers have been moored near Ain Sukhna, a terminal in Egypt from which oil can be piped to storage tanks in the Mediterranean. That’s now down by two, including the Saudi airline that had waited the longest and is now moored at the facility.

Saudi officials have not commented on what caused the accumulation, but the most likely explanation would be a lack of storage facilities. It also comes at the end of a period when oil refineries in Europe and North America traditionally undergo routine maintenance, resulting in a drop in demand for kegs. The kingdom is cutting its crude oil production to support oil prices and announced another unilateral cut next month.

Normally, the ships would unload their cargoes at a terminal at the southern end of Egypt’s Suez Canal before heading back to the Persian Gulf or Saudi Arabia’s Red Sea oil terminal at Yanbu.

More recently, however, the usual practice has gone haywire, withholding up to 22 million barrels that refiners could really use. That figure dropped on Wednesday when a waiting ship sailed, and again on Thursday when the Wafrah, which had been at anchor since June 1, moored. The two Chinese ships arrived in May and are still there.

Here’s what’s 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 offload full loads of 2 million barrels at Ain Sukhna, or offload about half that volume to reduce their draft enough to allow them to pass through the Suez Canal.

Most Saudi Arabian supertankers usually ship to Ain Sukhna without passing through the Channel.

Mediterranean wave

It seems unlikely that maintenance work at the refinery caused the deposits.

According to Vortexa, shipments from Sidi Kerir, Egypt’s Red Sea port, have surged to more than 830,000 barrels a day for the 20 days this month. That’s the highest volume from the terminal since April 2020, when Saudi Arabia’s exports soared before OPEC+ approved production cuts.

The proliferation of Saudi tankers coincides with the strengthening of the physical oil market in the Mediterranean, which itself has recently lost large amounts of oil from northern Iraq, not dissimilar to the quality Saudi Arabia can bring in.

The build comes just weeks ahead of another 1 million barrels per day production cut by the kingdom, which is due to be implemented in July.

Tanker tracking indicates the cluster is unusually large. The amount of oil stored in the sea off the coast of Egypt has not been this high since at least 2016, according to Kpler data.

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

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

© 2023 Bloomberg LP

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