Why did the Saudi's jump into the VLCC market today?

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Interesting day, lots of activity, gasoline was off hard and crude followed it. Venezuela's unstable, the rest of S. America's right there with it, and OPEC may be starting to show a little shade of it's former self.

The Saudi's stepped up to the plate today and chartered 4 VLCC's and one ULCC (for a grand total of approx. 12 million bbls.) which stated their destination as the US gulf coast. Now I happen to know that the Saudi's aren't particularly fond of reselling thier cargo's on the open market to trading houses, so in all likelihood and based on past import records, I'd guess these bbls. are headed to the Big E (Exxon). Hmmmm....wonder how that works? Or perhaps it's a sword of Damaclese over the Vens in the gulf. Who knows? All I know is that the V market has gotten hot enough to impact smaller Aframax and Suezmax rates. I think the re-stock ahead of Y2K has officially begun. Look for tonnage to become tighter than a gnats ass stretched over a barrel of crude oil.......

Also, interesting commodities commercial developement today.... Cargill dumped the entire country of South Africa for trading and trade over the millenium....WOW....Cargill's a big gorilla and that's a hell of a strong statement....Yikes....

Here's that story and freight updates for educational and research purposes only.

139--Dirty tankers: Limited VLCC supplies continue to boost rates London--2Sep99/1156 am EDT/1556 GMT The shortage of modern vessels in September continued to heat up the Persian Gulf VLCC market, brokers reported. The Golar Stirling was reported fixed into Onsan at w50 for a 270kmt cargo, while Vela was forced to pay up to w49-52.5 for its late Sep cargoes west. Brokers pegged rates into Japan at w52.5, "or even higher." Indo Aframaxes remained firm, with rates into Japan again talked at w100. Further west, the WAf Suezmax market finally appeared to be emerging from the doldrums, bringing relief to long-suffering shipowners. A number of ships were fixed to the US at w60, a rise of w7.5 on rates at the beginning of the week. --Platt's Global Alert-- [0139] [C] [GS] [GE] [GF] [GM] [T]

TOKYO, Sept 2 (Reuters) - The Japanese unit of U.S.-based commodities giant Cargill Inc is studying potential problems related to the millennium computer bug, a company spokesman in Tokyo said on Thursday.

The Financial Times reported on Thursday that Cargill's South African subsidiary would halt entering into or executing trades in maize, oilseeds, wheat or any other commodities from December 15 to January 15 because of worries over the country's preparations for the millenium bug.

``We don't have such a plan at the moment,'' the spokesman in Japan said. He added the company was consulting with Japanese customers how to cope with possible external problems such as an electric power shutdown.

U.S. consultancy Gartner Group (NYSE:IT - news) put South Africa in a high risk category for possible interruption.

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-- gordon (g_gecko_69@hotmail.com), September 02, 1999


Before we can consider why, we might want to look at "how long?" If the Saudis chartered for one trip, it would be a momentary blip. If they are chartering for 4-5 months or longer, it could be that they are trying to control/ensure the flow of oil to their clients. I would suspect the latter. Having worked with Saudis in the past, I can tell you that they are often very sharp commercially. Whatever their reasoning, this was not a mistake...but was planned.

-- Mad Monk (madmonk@hawaiian.net), September 02, 1999.

Monk, you are correct. I will check tommorrow to try to find out the length of the charter. I know that the Iranians who are holding 21 million bbls. plus off Kharg Island in a flotilla chartered those vessels for a minimum 5 months starting in Aug. I'm sure they have options to extend as well, but they were def. long term charters. The Saudi's are EXTREMELY smart players. This WILL be an interesting time. There WAS quite a scramble for tonnage underway today, tommorow will be fun. Yeehaa!!

-- Gordon (g_gecko_69@hotmail.com), September 02, 1999.

Guys, please help me out. What is the breakpoint, sizewise, between a VLCC, and an ULCC? Also, where is this data on charters reported??

Thanks in advance.

-- K. Stevens (kstevens@ It's ALL going away in January.com), September 02, 1999.

Gordon, you called it yesterday. This will mushroom as everyone will get into the game. I look forward to your post tomorrow.

-- Mike Lang (webflir@erols.com), September 02, 1999.

Filled up tank last night and thought, gee, if gasoline goes much higher I need to buy oil stocks. But on CNN last night they were touting that oil would be dropping due to end of summer, no more refinery explosions planned, oops, uh, make that they've been fixed, blah, blah.

G, is this is seasonal end of summer thing or something more?

-- texan (ranch@bullseye.com), September 02, 1999.

Gordon, Why do you think this chartering activity is unusual? The Saudis have moved up from the 3rd largest source of imported crude into the US in '97 @ 1.3 m bls /day to No 1 in 98 (1.35 mb/d) & No 1 so far this year (1.48 mbls/d). Don't forget they now own part of Texaco's downstream assets via the Star deal. They're shipping bookoo oil to the US Gulf on a daily basis. MM makes a good point. Are they time charters? If not, its probably just business as usual.

The Venz have their own supply deals and dowstream assets in the US via Unoven, CITGO and others. As the meeting in Caacass with the Saudis and the Mexicans just last weekend demonstrated, the Saudis and the Venz arent in any pissing matches. As you've pointed out before, crude prices have doubled and are going higher. There's a big market for everyone. The producers are gonna be fat and happy until the big rollover and then were gonna see who did their y2k homework. Those that did will be richly rewarded. I would think those that move in and time charter a few tankers early will be too.

But there's too many in this industry that were sitting on fat long positions on the first day of our airwar with Iraq when they lost $12 / bl overnight. Its a painful memory. I continue to think '90/'91 might be a good analog year - a $40 top in crude, a 20% stock market correction, a couple of quarters of negative GDP and everyone sitting on too much oil a day after that Jan 15, 1991 deadline.

-- Downstreamer (downstream@bigfoot.com), September 02, 1999.

The break between a VLCC and ULCC is approx 40O,000 DWT and 260- 270,000 DWT or roughly 3.5 million bbls. vs. 2 mill bbls. And in response to the above:

1. Today's activity along with the Japanese, Taiwanese and Iranian VLCC moves was unusual. The large tonnage is being sucked up so rapidly that it's moving the Aframax and Suezmax along with it. Draw your own conclusions.

2. My feeling has been for some time that the big players would put away some serious bbls. ahead of this crisis. Since we've been steadily eating away at stocks, I thought and think that the crude would need to move. Rising freights are a good lead indicator. People lying about taking VLCC's (which the Japs are doing) is a really good leading indicator of physical tightening.

3. My understanding was that the ships done by the Saudi's today were above and beyond norm. I am aware of exactly how many bbls. they move into the Gulf as I track monthly import numbers. I think they're getting long tonnage.

4. I don't see this as the time to put a shitload of gasoline in your garage. This is not yet a panic situation. Rest assured that it will get to that as Joe Publix does panic at year end, but by no means is it time yet. Being in the industry I have been privy to a lot of info regarding this problem and I'm not encouraged by some of the things I'm hearing with pipeline failures etc. So I do think things will get pretty interesting. If you do stockpile gas, use some Stabil to keep the gas good and wait til RVP season is completely over so that you can use winter gas.

-- Gordon (g_gecko_69@hotmail.com), September 02, 1999.

Based on the 50 cent drop in NYMEX crude prices today....it isnt.

-- Downstreamer (downstream@bigfoot.com), September 02, 1999.

You wrote: The Venz have their own supply deals and dowstream assets in the US via Unoven, CITGO and others. As the meeting in Caacass with the Saudis and the Mexicans just last weekend demonstrated, the Saudis and the Venz arent in any pissing matches.

My response: As a matter of fact, the Sept. meeting is shaping up to be anything but a docile confirmation of continuing cuts. Opec has always had an even harder time figuring out how to increase production than decrease it. And as far as the Vens go, their is an enormous amount of turmoil down there. The whole damn admin from PDVSA just quit/got tossed out....Chavez is in a bind....the real test is to come soon for him...

-- Gordon (g_gecko_69@hotmail.com), September 02, 1999.

Today's drop does not a long trend make.

The trend is your friend and it ain't down.

Gas puked today, that's it. Crude went with it for no reason. That's all she wrote.

-- Gordon (g_gecko_69@hotmail.com), September 02, 1999.

Let me try it again.... Based on today's 50 cent drop in crude prices, the trading community does not think theres any unusual scamble for tankers going on.

-- Downstreamer (downstream@bigfoot.com), September 02, 1999.

Pardon me but this market stuff is way over my head.

Have you considered that it is not the Oil that is at risk but the shipping?

I would recommend the following link.


-- Brian (
imager@home.com), September 02, 1999.

Pardon this silly question but is it better to store gasoline in metal or plastic container and how long would it stay good without Stabil? Thanks :)

-- Gia (laureltree7@hotmail.com), September 03, 1999.

BRIAN and the missing link would be????

surely not piltdown LOL C

-- Chuck, a night driver (rienzoo@en.com), September 03, 1999.

Sorry :o)

Well here is the link from good old source code.

Year 2000 (Y2K) Reporting Requirements for Vessels and Marine Facilities

Due to the unique nature of the Year 2000 (Y2K) problem, this rule is being published as a temporary interim rule and is being made effective on July 23, 1999.

Might do a bit of digging for this subject.

-- Brian (imager@home.com), September 03, 1999.

Well I didn't have far to go.


Discussion of Regulatory Action

Due to the unique nature of the Year 2000 (Y2K) problem, this rule is being published as a temporary interim rule and is being made effective on July 23, 1999. It will have considerable positive impact on marine safety by establishing a reporting requirement for certain vessels and marine facilities on Y2K preparedness. The rule is temporary in nature--it runs for a defined period of time and is tailored to critical Y2K-related dates.

And this is a update


Discussion of Regulatory Action

This rule delays the submission requirement for the Y2K questionnaires from August 1, 1999 to August 20, 1999. This delay facilitates the regulated public's ability to use the Internet and other means to submit the required questionnaires. Because this rule relieves the restriction for the August 1, 1999, submission date, until August 20, 1999, under 5 U.S.C. 553 (d)(1), it is effective on its date of publication in the Federal Register.


The look of this document is rather worrysome. Rather late and they are holding a rather big stick. Oil dudes might just want to get the oil in the water so it is someone elses problem :o)

By the way how are Swiss banks doing lately?

-- Brian (imager@home.com), September 03, 1999.

And a bit of back up from a recent thread.

 Oil and Y2K-- An Updated Report ... by request


       Let's try this again.

       I think I posted this earlier on another thread, but I received information on an
       email list serv from a remediator in Saudi Arabia.

       He reported that the Saudis had only recently gone GI and are trying to spend
       beaucoup bucks to fix the problem. Apparently the French are in charge of the
       desalination plants and at first glance appeared to be in good shape.

       Unfortunately, the cargo loading systems in the ports are in horrible shape. He
       was not confident that the problems would be worked out in time for rollover. If
       they cannot load the oil onto the tankers, we don't get the oil.

       -- nothere nothere (notherethere@hotmail.com), August 31, 1999.

-- Brian (imager@home.com), September 03, 1999.

How tough can it be to pump oil from a tank into a tanker? I appreciate the info because its probably a reflection of the earlier Saudi ambivalance to y2k, but I cant believe this is the kinda thing thats gonna bring the whole crude exporting system down for an extended period. If they've known for a year that they've got a problem they could gerry-rig up some kind of back up system or even fix-on failure in a day or 2. Unlike the US they wont hafta worry about environmental or other regs their backup/temp loading system- the gov is the oil company.

Consider the way the Iraqis continue to pump oil when their facilities get bombed back to the stone age by the Iranians (in the 80s) or us (in the 90s) and they have an ongoing parts and supply embargo.

I'm more worried about highly complex systems such as refineries or even tanker navigation systems.

-- Downstreamer (downstream@bigfoot.com), September 03, 1999.

OK Gordon, I can read ya all ready... NYMEX crude just closed up 50 cents negating yesterday's drop.

This is a classic bull market. Any price drops we've seen over the last couple of months have been immediately negated within a session or 2. Onward and upward...into the millenium.

-- Downstreamer (downstream@bigfoot.com), September 03, 1999.

Gents -

Always a pleasure to read discussions between SMEs (subject matter experts). Question for ya: doesn't a bull market in oil generate significant inflationary pressures throughout the economy? In other words, aren't the oil and stock markets in conflict currently?

Stock market took off like a rocket today when the friendly employment forecast (read "low wage inflation") came out. How much thrust does it lose if oil prices start heading toward the $40/barrel levels that Gordon mentioned?

-- Mac (sneak@lurk.hid), September 03, 1999.

To downstream and mad monk, i got more info today on the saudi charters. They picked up these vessels for a four month stint with two two month options. That means they could concievably have them on until next April. They did this above and beyond their normal activities which is why I reported it. They and others have really dragged rates up.

I also heard today that Koreans and others are buying West African sour like there's no tommorrow. And to all here, I don't pretend for a second to know where crude will settle on a daily basis. I'm merely a humble analyst. I try to take a longer view with an eye toward identifiable market dyanamics. I am frequently wrong, as commodities are inherently fickle.

Above you wrote: Question for ya: doesn't a bull market in oil generate significant inflationary pressures throughout the economy? In other words, aren't the oil and stock markets in conflict currently?

My answer: They are completely in conflict. The market moves you are seeing are an abberration, a freakshow. I believe much of this, including today's somewhat ludicrous celebration of suspect data, is direct market intervention by the US Gov. The amount of commod. inspired inflation alone is staggering when you consider that crude was as low as 12 dollars per bb. for wti not long ago.

For educational and research purposes only: > Mideast crude tanker rates continue to climb > LONDON, Sept 3 (Reuters) - Freight rates for Korea-bound > VLCCs out of the Middle East joined those for Japan in hitting > W50 by the end of the week, brokers said on Friday. > At least one fixture of W50 was reported for Korea, up from > around W47.5 earlier in the week as the Mideast VLCC market > strengthened. > Some 70 vessels of around 21 million tonnes were potentially > available in the area in the next month, but a shortage of > modern tonnage for September liftings suggested rates could > strengthen further. > "Owners will look to make further improvements," broker > Gibson said in its weekly report. > Other brokers said owners were holding out for higher rates > are after being hurt by recent high bunker prices, and VLCC > rates westbound were also strengthening. > VLCCC fixing to the U.S. Gulf reached WS49 by the end of the > week, again up from W47.5 at mid-week. > Million barrel markets also began a recovery through the > week boosted by activity out of West Africa and inquiries for > Novorossisk loading when the terminal reopens midway through the > month. > Suezmax rates out of West Africa to the U.S. hit W60 and in > one reported case W65, up from W55 at midweek, brokers said. For > the Caribbean W70 was reported. > Modern Suezmax tonnage out of the Black Sea and > Mediterranean could be expected to achieve W65 for Med and > UK/Continent discharge, Gibson said. > However, the Aframax market continued to be depressed, > brokers said. > In the North Sea W80 was reported for voyages to the > Continent while cross Mediterranean trading was still pegged at > around W75-77.5, although there was one reported fixture at > W82.5. > Some owners were talking about laying up vessels, one broker > said. > The Caribbean also remained depressed with 70,000 tonners to > the U.S. held back to the W100-105 range.

-- Gordon (g_gecko_69@hotmail.com), September 03, 1999.

Hummmmmm.....The humble market analyst wants to be referred to as...... Gordon Geko 69@ hotmail.com... : )

-- Downstreamer (downstream@bigfoot.com), September 06, 1999.

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