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EIA: US crude exports on the up

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Hydrocarbon Engineering,

Since the removal of restrictions on exporting US crude oil in December 2015, the number of countries receiving exported US crude has risen sharply. These exports have occurred despite a sustained narrow price premium of international crude oil prices over US domestic crude oil prices, the many costs associated with arranging cargoes for export, and falling US crude production.

In the first five months of 2016, US crude oil exports averaged 501 000 bpd, 43 000 bpd (9%) more than the full year 2015 average. This rate of growth is significantly slower than before the restrictions were lifted, when year over year growth from 2012 to 2013 was 100%, and then 162% from 2013 to 2014. However, after the lifting of restrictions, the number and variety of destinations for US crude oil exports has changed. So far in 2016, crude oil was exported to 16 different nations, six more than 2015 and double the number of destinations in 2014.

Before the removal of export restrictions, most US crude oil shipments were to Canada. In recent years, crude exports to destinations other than Canada were re-exported volumes of foreign crude or an occasional cargo of Alaskan crude, which was exempt from export restrictions.

In March 2016, total crude oil exports to countries other than Canada exceeded those to Canada for the first time since April 2000, 259 000 bpd versus 249 000 bpd. In May 2016, when total US crude oil exports reached 662 000 bpd; exports to countries other than Canada exceeded exports to Canada by 46 000 bpd

Aside from Canada, the largest and most consistent US crude export destination for the first five months of 2016 has been Curacao, located in the Caribbean Sea north of Venezuela; exports averaged 54 000 bpd through May. Petróleos de Venezuela (PDVSA), the state owned oil company of Venezuela, operates the 330 000 bpd Isla refinery on Curacao, as well as crude and petroleum product storage facilities on the island. Trade press reports indicate that US crude exports to Curacao are likely being used as diluent, blending a light US crude with a heavy Venezuelan crude, for either processing at the Isla refinery or for re-export to PDVSA customers.

Exports to the Netherlands, the second largest non-Canadian destination for US crude oil, averaged 39 000 bpd through the first five months of this year. Two of the three cities that collectively are the large refining and petroleum product trading hub of Amsterdam, Rotterdam, and Antwerp, known as the ARA, are located in the Netherlands. Other Western European nations, including Italy, France, and the UK, also rank high on the list of US crude oil export destinations.

The Marshall Islands, a group of islands in the Pacific Ocean, was the fifth largest non-Canadian destination for US crude oil exports in 2016, averaging 14 000 bpd through May. With no refineries, the Marshall Islands are unlikely to be the final destination, but rather the location of 'ship to ship' transfers for delivery to destinations in Asia, or a point at which a cargo of crude oil would await a buyer in Asia. US Customs and Border Protection documentation requires the final destination of an export, if known. Therefore, cargoes that will undergo ‘ship to ship’ transfer or that do not have a buyer prior to loading will cite the jurisdiction of the transfer, not the cargo's actual final destination.

The costs involved in exporting a cargo of crude oil can vary significantly. Transporting crude to a port, storage, loading, shipping, and other costs typically require large price spreads to make a transaction economic. Recent exports are occurring during a period when the price of Brent crude oil (the benchmark for global seaborne crude) has held a narrow premium to West Texas Intermediate (WTI, the US benchmark), limiting the positive economic options for exporting US crude. Through early August 2016, WTI averaged about US$0.31/bbl less than Brent, despite a recent widening to US$1.08/bbl for the week ending 1 July.

Available shipping options can provide opportunities for crude exports despite a narrow price spread. For example, the recent cost of booking a tanker for a spot shipment of crude oil has been the lowest since 2009. Also, if either a buyer or a seller of exported crude oil has a tanker on time charter (meaning the vessel’s time has already been paid for a set period, fixing its cost), the vessel may operate independently of tanker rates. Another shipping option is to book a backhaul voyage, the trip a tanker would normally make empty while returning to a port to load its next cargo. Backhaul voyages can be significantly discounted from regular tanker rates. Refineries in the ARA and in the rest of Western Europe actively trade with markets and refineries in the US, using both clean (refined cargoes) and dirty (less refined or unrefined cargoes) tankers. Trade flows between Europe and the US Gulf Coast, which primarily use dirty tankers for transporting crude and less refined products such as residual fuel oil, provide opportunities for backhaul cargoes of US crude oil.

In addition, sellers of US crude can use several methods to entice buyers despite unfavourable price spreads. A particular cargo or grade of crude oil can be discounted from a benchmark based on quality variations, such as API gravity, sulfur content, or other specifications. With the hope of continued purchases in the future, marketers of US crude for export may offer buyers price discounts on sample or test cargoes, so that refiners may become more familiar with the crude and its compatibility with their refinery and desired product yield. This may explain some of the sporadic, typically small volume crude oil export patterns to some countries in Asia, Europe, and elsewhere.

Sustained and significant increases in US crude oil exports, however, likely require more than lower shipping costs and sporadic purchases. It would require increased US crude oil production and a significantly wider Brent-WTI price spread, neither of which are projected in EIA’s August Short Term Energy Outlook.

US gasoline and diesel fuel prices decline

The US average regular gasoline retail price dropped US$0.01 from the previous week to US$2.15/gal. on 8 August, down US$0.48 from the same time last year. The Midwest was the sole region with a price increase, rising US$0.04 to US$2.12/gal. The West Coast price dropped US$0.04 to US$2.57/gal. The Rocky Mountain and East Coast prices each fell US$0.03 to US$2.23/gal. and US$2.07/gal., respectively. The Gulf Coast price fell US$0.02 to US$1.93/gal.

The US average diesel fuel price fell by US$0.03 for the second consecutive week to US$2.32/gal., down US$0.30 from the same time last year. The West Coast and Gulf Coast prices each dropped US$0.04 to US$2.60/gal. and US$2.18/gal., respectively. The East Coast and Midwest prices each dropped US$0.03 to US$2.32/gal. and US$2.28/gal., respectively. The Rocky Mountain price fell US$0.02 to US$2.40/gal.

Propane inventories gain

US propane stocks increased by 2 million bbls last week to 91.9 million bbls as of 5 August 2016, 0.9 million bbls (1.0%) lower than a year ago. Gulf Coast, East Coast, and Rocky Mountain/West Coast inventories increased by 1.1 million bbls, 0.6 million bbls, and 0.3 million bbls, respectively. Midwest inventories decreased by 0.1 million bbls. Propylene non-fuel-use inventories represented 2.8% of total propane inventories.

Adapted from press release by Francesca Brindle

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