Even if the U.S. government will install an outright ban on Saudi oil, it won’t make much of a difference considering the huge demand destruction and filling storage tanks Desperate times call for desperate measures. After helping broker a new OPEC+ production cut deal which the oil market shrugged off, the Trump Administration is looking into various ways to help struggling U.S. oil producers and lift plunging WTI Crude prices.
One of the ideas that has been circulating for weeks, including via proposals from Republican Senators, is to have the U.S. Admiration stop the flow of crude oil from Saudi Arabia. The highest number of Saudi oil shipments in years are making their way to the United States this month, threatening to make an already dire situation in the U.S. oil industry even worse.
Asked if he would consider stopping Saudi oil shipments currently en route to the United States, U.S. President Donald Trump said on Monday, “we’ll look at it.”
Even if President Trump were to make a politically sensitive decision to defer, slap import tariffs on, or outright ban Saudi oil shipments, he will not save the U.S. oil industry and oil prices, considering the huge demand destruction and the fast-depleting available storage capacity.
The Saudi oil flows en route to the U.S. Gulf and West Coasts are not an insignificant amount—a total of 40 million barrels of Saudi oil on 20 supertankers are making their way to America with arrivals scheduled in May–according to Bloomberg tanker tracking estimates. While it’s not immediately clear who owns the oil on these very large crude carriers (VLCCs), more than half of those vessels, as per Bloomberg data, are either owned or chartered by the Saudi state oil shipping firm Bahri, which was understood in March to have hired multiple supertankers to carry all the extra oil that the Kingdom planned on exporting in April.
According to Bloomberg’s oil strategist Julian Lee, the fact that most of those tankers are currently operated by Bahri could suggest that at least some of the 40 million barrels of oil traveling to America may not have been sold at loading at Saudi oil terminals as per the Kingdom’s usual export process. If no American company owns the oil yet, it could be easier for the Administration to slap tariffs or ban its import, should President Trump decide to do so, Lee says.
According to data from Lloyd’s List Intelligence, at least 18 supertankers – mostly chartered by Bahri – are carrying Saudi crude and are traveling to the U.S. Gulf Coast.
But even in the unlikely event of the U.S. banning entry to all those 40 million barrels of crude oil, such a measure would be a drop in the ocean of unwanted crude in which the U.S. oil producers are drowning.
While a Saudi fleet of 40 million barrels is traveling to the U.S., more than 20 million barrels of oil are idling on tankers offshore California, and most of them are serving as storage, according to Kpler data cited by Bloomberg.
At least one in ten VLCCs around the world is being used as floating storage, Saudi oil officials told the Wall Street Journal this week. Many of those supertankers are loaded with unsold Saudi crude—a sign that the Saudi pledge from early March to flood the world with oil is backfiring in a spectacular way as no one in America needs more oil right now.
“Demand for gasoline remained anemic at 5.08 million barrels per day, while GasBuddy demand figures put the loss around 55-70% by state as millions are staying at home and some now without work. Refineries also pulled back, utilizing just 69.1% of their capacity at a time of year they’re typically north of 90-95%,” according to GasBuddy.
“It’s possible that if current conditions continue, Cushing storage tanks could reach capacity by mid-May,” Wood Mackenzie analysts said on Tuesday, commenting on Monday’s crash in WTI Crude May futures which slipped into negative territory for the first time.
The April pain in the oil market could continue in May as storage will continue to shrink while voluntary cuts from OPEC+ (starting on May 1) and forced shut-ins across the U.S. shale patch can’t come fast enough to offset the massive demand losses.
The glut could, however, force the hand of oil producers in free markets, such as the U.S. and Canada, to curtail more production, faster.
“Production cuts and shut-ins could remove as much as 17 MMb/d of supply from the market this spring,” said Jim Burkhard, vice president and head of oil markets at IHS Markit.