President Trump is facing pressure to do something about a deluge of Saudi oil on its way to the United States, threatening to worsen an already historic glut and price crash caused by the coronavirus halting demand.
“I call on President Trump to prevent them from unloading in the United States,” tweeted Sen. Kevin Cramer, a Republican from North Dakota, a major oil state, after U.S. oil futures prices for May went below zero for the first time in history.
Trump said he’s looking into the situation when asked this week whether he’d use emergency authorities to stop the oil from coming here.
The tankers, carrying more than 40 million barrels of crude, are expected to arrive over the next four weeks, according to S&P Global Platts trade flow service cFlow.
The tankers left Saudi Arabia before it ended a price war with Russia and partnered with other oil-producing nations to cut production by nearly 10 million barrels per day. That pact, which begins in May, came after Saudi Arabia flooded an already oversupplied market in retaliation for Russia breaking from an alliance in which the countries, the two biggest oil producers outside the U.S., would cut production to raise prices.
Saudi Arabia could still reroute at least some of the oil, energy analysts say, and is considering doing so if Trump tries to halt imports, Reuters reported.
Amy Myers Jaffe, director of the Energy Security and Climate Change Program at the Council on Foreign Relations, said she’s watching to see whether Saudi Arabia can find alternative customers for the inbound oil in Asia, where the economic recovery from the coronavirus is farther along. The buyer and seller can also agree to stagger or slow its arrival to the U.S., she told the Washington Examiner.
But lobbying groups representing oil producers and refiners oppose a blockade of Saudi oil coming into the U.S. because it would disrupt the global energy market, which is interdependent and complicated.
“U.S. refiners bought the oil not just because of the low price but also because it is a heavier crude than what is produced in the U.S., and this heavier crude is what the U.S. refineries were built to run to produce products like gasoline, jet fuel, and diesel,” Joe McMonigle, the Energy Department chief of staff during the George W. Bush administration, told the Washington Examiner.
At least some of the incoming oil is under contract by U.S. refiners, and many of the contracts were likely signed prior to the oil market crisis in early March or late February.
Generally, most large buyers of Saudi oil are on the West Coast, which is forced to import crude because of a lack of pipeline capacity to transport U.S. oil.
“The oil is from Saudi Arabia, but American companies own it now,” said Matt Reed, vice president of the energy consultancy Foreign Reports.
“Titles have changed hands. Saudi Arabia can’t turn these ships around because it’s not their oil anymore,” Reed told the Washington Examiner.
But some of the incoming oil will be going to the Motiva refinery in Port Arthur, Texas, the country’s largest refinery, which is owned by Saudi Arabia’s state oil company, Saudi Aramco.
That means Saudi Arabia should be able to divert the oil if Trump forced or convinced it to.
“Trump can probably convince Saudi Arabia, by the force of his will, to get that oil sent somewhere else,” said Jim Krane, energy geopolitics fellow at Rice University’s Baker Institute. “Even though they have to put up with this unseemly protectionism, that is a small issue when compared to the diplomatic backing we provide them through good times and bad. That U.S. friendship is still super important to Riyadh. In the big scheme, the Saudis would show some flexibility on this.”
An oil industry source, however, told the Washington Examiner that it’s likely some of the tankers may not have buyers for the oil.
Tankers often change routes and buyers while crossing oceans, the source said.
