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| Authors: | Youssef Michel Ibrahim Axel Busch John Schaik |
|---|
January 9, 2003
Energy Intelligence Group
Apparently anxious to win favor with the US, Saudi Arabia is quietly acting behind the scenes to get more oil into world markets, making up for the shortages caused by Venezuela's political crisis and sparing the Bush administration from pressure to tap its strategic petroleum reserves. While the Saudis continue to maintain that they would not allow US troops to use their territory to attack Iraq, they seem to be making up for it by responding to requests for more Saudi oil, taking some of the heat off oil prices.
While arguably this could stem from pure commercial interests, the Saudis' market moves, confirmed by traders, reflect a growing concern within the Saudi leadership that the kingdom could be "excluded" from consultations in the aftermath of an impending war with Iraq.
"We do want a place at the table after the war, if there is a war," said one senior Saudi official. "Everyone in this region does, and everyone will help, but not as overtly as Kuwait and Qatar," the official said, referring to Egypt, Oman, and the United Arab Emirates, which have rejected any significant presence of US troops on their territory.
Yet another senior Saudi official said that economic considerations are also paramount. "When the price is good, we sell more oil," he said, adding that Aramco is keeping some 30 million barrels in storage in the Caribbean, close to the US market.
In a conversation in Cairo last month, Egyptian President Hosni Mubarak told Energy Intelligence Group that he expected every Arab country to facilitate the mission of the US against Iraq -- in its own way. The Saudi official agreed with this assessment. "We will, in the end, allow US forces to at least use air space, to fly over and to coordinate from here, even as we reject any stationing of ground troops," as Kuwait and Qatar are doing, he said.
The Saudis' way of demonstrating cooperation with the US -- through oil -- is the path of least political resistance and potential backlash in a country where anti-US sentiment runs high. "We are using the oil weapon positively. The Americans know that," the Saudi official asserted.
Indeed, in the past few days, US officials have praised Saudi cooperation, and it seems that word has gone out from the White House to ease up on criticism of the Saudis.
Market sources confirm the Saudis' quiet move to pump more oil. "For being an intransigent group, they are quite helpful," a US term client said, adding that Saudi Aramco is going out of its way to accommodate the needs of its US clients. The refiner said that Saudi Arabia had already been covering Venezuelan shortfalls well before the latest fixtures became known. Aramco has made stocks in the Caribbean available for US refiners, and even encouraged them to pick up the oil themselves, instead having Aramco deliver it as usual.
Refiners say, however, that Aramco is limited in its ability to replace Venezuelan streams, which typically provide US markets with some 1.5 million barrels of crude per day. Venezuela's Mesa crude, at 30-degree API and 0.88% sulfur content, comes close to Arab Medium or Arab Light grades, although these Mideast crudes are more sour. But the Venezuelan synthetic crudes -- upgrades from oil sands -- are in a league of their own and hard to replace by anything available in the market.
Still market sources say Saudi Arabia is ready to ship extra oil to the US to help make up for lost Venezuelan production. Saudi Aramco's Vela shipping arm has been in the spot tanker market twice in the last week fixing enough tonnage to carry an extra 19.7 million barrels to the US Gulf. Vela has chartered three ultra-large crude carriers and four very large crude carriers to load the oil between Jan. 12 and Feb. 9, equivalent to 730,000 b/d over the 27-day loading period.
The fact that all the fixtures have Red Sea options sparked rumors that the Saudi's were building floating storage in case of war in Iraq. But Tankers International, owners of the Eli Maersk -- one of the fixtures -- says the ships are definitely heading for the US. They say Vela contracts always include Red Sea options -- so that the company can discharge into the Sumed pipeline and pick up the cargo in one of its own vessels in the Mediterranean, should one become available. Shipowners may not like the arrangement, but Vela wields sufficient market power to overcome protests.
Another shipping source denies that the short-notice fixtures constitute a sign of urgency. They were made because no one believed the strike would last this long, the source says.
But industry sources say that the oil is "political" rather than "commercial," and definitely linked to the Venezuelan crisis. Whether the oil has been made available to lifters because of their own applications to Saudi Aramco or through direct intervention by the US government is not known, but the sources are confident political fertilizer will have been applied. One source with generally solid knowledge of such matters says the barrels probably won't show up in companies' normal contractual allocations.
Although non-US companies that have approached Aramco for more oil have had little to show for their trouble, news of the extra replacement barrels for lost Venezuelan exports will no doubt go down like a lead balloon at the Jan.12 emergency Opec meeting in Vienna. The Saudis will likely be accused of having unfairly jumped the gun in the race for additional market share.
Recent Vela Spot Chartering
(all destination US Gulf with Red Sea options)
| Ship | '000 tons | mill bbl | WS | Loads | Fixed |
| Frank A. Shrontz | 280 | 2.04 | WS 82.50 | Jan. 12 | Jan. 2 |
| Front Duke | 275 | 2.01 | WS 82 | Jan. 12 | Jan. 2 |
| Sea Giant | 540 | 3.94 | WS 63.75 | Jan. 15 | Jan. 2 |
| Jahare Viking | 550 | 4.02 | WS 70 | Feb. 6 | Jan. 7 |
| Sea World | 480 | 3.50 | WS 67.5 | Feb. 9 | Jan. 7 |
| Eli Maersk | 285 | 2.08 | WS 85 | Feb. 1 | Jan. 7 |
| Marjan | 285 | 2.08 | WS 82.50 | Feb. 1 | Jan. 7 |
| Total | 2,695 | 19.67 | - | - | - |
This story is part of Energy Intelligence Group's special Eye on Iraq series, providing intensified coverage in Energy Intelligence Briefing and our other publications of the rising tensions in the Middle East and Iraq and their implications for the global petroleum business. For more about Eye on Iraq, visit our web site at www.energyintel.com.
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