Aramco sells 60 million barrels for Gulf loading, traders say

Summary

• Saudi Aramco sold about 60 million barrels from Ras Tanura for September and October loading, traders said.
• Volumes move via ship-to-ship transfer off Oman's Sohar, offsetting losses at the Red Sea port of Yanbu.
• Chinese, South Korean, Indian and Japanese refiners are buying, and global oil futures fell more than $1.

The latest

About 60 million barrels of Saudi crude have been sold from the Gulf port of Ras Tanura for loading this month and next through ship-to-ship transfers at Oman's Sohar, multiple trade sources told Reuters. The volumes lift exports from inside the Strait of Hormuz back to between 1 million and 1.5 million barrels per day, at or slightly above August levels.

Details

• The volumes: Trade sources said the barrels were sold from Ras Tanura, inside the Strait of Hormuz, for loading in September and October. The transfer point is Sohar in Oman, outside the strait, where cargoes are moved ship-to-ship before heading to buyers. The sources spoke on condition of anonymity.
• The rate: Average exports from inside the Gulf have rebounded to 1 million to 1.5 million barrels per day, according to the same sources. That is similar to or slightly higher than August, and marks a recovery in flows that had been disrupted earlier in the crisis affecting Saudi export infrastructure.
• The buyers: Chinese and South Korean refiners are among the biggest purchasers of the spot cargoes, the sources said, with some volumes destined for India and Japan. Asia is the main market for Saudi crude, making the additional Gulf liftings a direct benefit for regional refiners.
• The Yanbu gap: The added Gulf barrels could compensate for part of the volume lost at Yanbu on the Red Sea, where exports slowed after the East-West pipeline was attacked. The line carries crude across the kingdom from eastern fields to the Red Sea coast.
• Price reaction: Global oil futures dropped more than $1 a barrel on Friday, following reports that Riyadh was seeking to restore roughly half of the East-West pipeline's capacity within days while offering more cargoes to Asian refiners via ship-to-ship transfers off Sohar.
• Freight squeeze: Shipping costs are moving the other way. A shipbroking firm said the rate to charter a very large crude carrier loading 2 million barrels in early October from Fujairah to Asia hit 800 on the Worldscale index, a record for the week.
• Japan's position: The Petroleum Association of Japan said on Friday that the country's refiners have secured sufficient crude supplies through November, citing ship-to-ship transfers taking place outside the Strait of Hormuz rather than direct loadings inside the Gulf.
• Risk transfer: PAJ President Shunichi Kito said in Tokyo that in some cases crude passes through the Strait of Hormuz "at Saudi Arabia's risk" before being transferred to Japanese buyers outside the Gulf, which is why Saudi supplies to Japan have not stopped entirely.

Background

The East-West pipeline links Saudi Arabia's eastern oilfields to Yanbu on the Red Sea, allowing exports to bypass the Strait of Hormuz. Damage to the line pushed volumes back toward Gulf ports, raising the share of Saudi crude that must transit the strait.

Between the lines

The pricing signal is split. Crude futures fell on the prospect of restored pipeline capacity and extra Asian cargoes, while tanker rates hit a record, indicating the market is pricing supply availability and transit risk separately. Kito's framing of cargoes moving at Saudi Arabia's risk points to who absorbs that exposure: the seller, not the Asian buyer.

What's next

Watch whether Saudi Arabia restores about half of the East-West pipeline's capacity within days, October loading schedules at Sohar, and whether Worldscale rates from Fujairah to Asia hold at record levels.

Source: Reuters