March 16, 2012 / 3:58 PM / in 6 years

EXCLUSIVE-UPDATE 1-Saudi oil sales, tanker bookings to US surge

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By Matthew Robinson and Jonathan Saul

NEW YORK/LONDON, March 16 (Reuters) - Saudi Arabia is preparing to extend this year’s unexpected surge in oil sales to the United States, according to tanker industry sources and government data, adding to speculation about the response of the world’s top oil exporter to sanctions against Iran and a rally in prices.

Contrary to expectations that the modest recent rise in the kingdom’s output was bound for fast-growing Asian markets, preliminary data shows that shipments to the United States have quietly risen 25 percent to the highest level since mid-2008, when the OPEC kingpin was driving up production to knock oil prices off record highs near $150 a barrel.

The surge appears set to continue. Vela, Saudi Arabia’s state oil tanker company, has booked at least nine very large crude carriers (VLCCs) capable of carrying 2 million barrels of crude each from the Middle East Gulf to the U.S. Gulf since the start of March, the biggest such wave of fixtures in years, analysts say.

Evidence of the boost in sales, which has gone largely unnoticed in the market, will likely provoke speculation about whether it is more political or commercial in nature and related to building up inventories at Saudi Arabia’s Motiva refining joint venture ahead of the completion of an expansion project.

The White House has been scrambling for options to bring down gasoline prices -- at a seasonal record high -- during an election year, after concerns over an Iranian supply disruption launched benchmark Brent crude to lofty peaks over $120 a barrel not seen since the record price run of 2008.

Washington has urged ally Saudi Arabia to cover potential shortages when new U.S. and European Union sanctions are expected to reduce Iranian oil exports from July. The Obama administration has considered releasing strategic oil inventories, potentially as part of a bilateral deal with Britain.

The kingdom has stepped up efforts this week to assure edgy markets that it will make up for any oil supply disruptions at a time when Iran’s standoff with the West has begun to intensify. Saudi output in February was up 450,000 barrels per day (bpd)from October at its highest since August. PRODN-SA


While the rise in Saudi output has been well charted, the fact that the lion’s share of it appears destined for U.S. refiners will come as a surprise to many. Overall U.S. demand for foreign crude has ebbed this year as a boom in domestic and Canadian production reduces the need for imports.

The reversal of the key Seaway pipeline -- which will begin running from Oklahoma to Texas by July -- was expected further to temper demand for imports by helping bring more cheap crude from the Midwest to the U.S. Gulf Coast refining hub.

“We were all expecting to see U.S. imports fall for Vela, so it’s a jump at a time when we are preparing for a reversal given the Seaway pipeline,” one shipping source said. “It raises the question why would they need more imports?”

Omar Nokta, managing director with investment bank Dahlman Rose & Co, said in a note on Friday that it was the first time in “several years” for Vela to book so many tankers in such a short time.

Provisional weekly data from the U.S. Energy Information Administration shows that the rise in supplies began several months ago, and outpaced gains to other consumers such as China.

U.S. imports of Saudi oil hit 1.5 million bpd in the first 10 weeks of 2012, up 300,000 bpd from the fourth quarter of 2011 and marking the largest rise in shipments since the second quarter of 2003. Saudi shipments to China in January rose only 14 percent from the year before.

Total U.S. crude imports are up only 165,000 bpd in the first 10 weeks of the year versus the fourth quarter. The EIA was not immediately able to respond to requests for an explanation of the data.

Part of the build could be to do with a massive expansion project at Saudi Arabia’s 285,000-bpd Motiva Port Arthur, Texas joint-venture refinery. The capacity of the plant will reach 660,000 bpd once the work is completed, with all units expected to be in production by the end of the second quarter.

Motiva declined to comment.

The shift also could simply be the result of restoring supplies to U.S. customers whose shipments had been cut much more deeply after prices crashed four years ago. (Additional reporting by Jonathan Leff in New York; Editing by Dale Hudson)

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