For the past week, the day rates for very-large crude carriers (VLCCs) has been rising to where $40,000/day is the going rate. The reason for the spike is that the Kingdom of Saudi Arabia has hired 11 of the 2 million-barrel-capacity VLCCs and has begun filling the
The Financial Times nails the reason:tankers with crude. Destination: USA.
The hiring spree was the most public move by the kingdom in a series of efforts aimed at bringing down oil prices from $125 a barrel towards $100.
The Saudis do not want crude priced at $125/barrel. Besides the massive tanker shipment, they are believed to be shipping crude to foreign storage terminals, as they did last year and they are bringing back on-line fields that have been shut-in, and planning to re-start a pipeline that would allow them to ship at least some of their crude in the event Iran closes the Strait of Hormuz.
The 22 million barrels that are being sent to the US are nearly equal to the 30 million barrels the US released last year from its Strategic Petroleum Reserve when the turmoil in Libya essentially stopped crude shipments from that country. The effect was to lower prices sharply, although they did rise again fairly quickly.
The Saudis are seeking to prove that they have the ability to replace any lost crude shipments from any country in OPEC. If they can do that, they retain their de facto leadership of the group. If they cannot, then Iran threatens to take over the cartel.
The tanker fleet has almost nothing to do with helping the US and everything to do with maintaining the Saudis’ position as the big dog in the Middle East. One side effect, of course, is that the President can take credit for lowering crude prices when, in fact, all he did was wake up in the morning. As for helping President Obama’s re-election hopes, this is way too early to have much impact — unless the Saudis can keep shipping extra millions of barrels until November.