U.S. crude shipments to Asia are expected to slow over the coming weeks as the window to profitably send crude to that continent has repeatedly slammed shut over the last month as U.S. Gulf Coast grades rallied, traders said.
U.S. Gulf Coast crude grades have strengthened over the past few weeks as U.S. crude’s discount to Brent has widened. Grades got a further boost after the spread hit its widest level in a month after the United States this week demanded that buyers of Iranian oil stop purchases by May 1 or face sanctions.
A bigger discount for U.S. crude versus Brent typically supports Gulf Coast grades because it makes grades linked to the U.S. benchmark cheaper than Brent-linked grades for foreign buyers.
But the recent rally has sent popular export grades such as West Texas Intermediate at Magellan East Houston, known as WTI MEH, to the highest levels in over a month, making it less profitable to ship to Asia, market sources said.
On Wednesday MEH traded as much as $7 a barrel above benchmark futures, the highest since March 15.
“The arb (arbitrage) is only barely open and has been closed to the East regularly over the past few weeks,” one source at a top exporter of U.S. crude said, adding that more barrels are likely to be sent to Europe.
U.S. crude arrivals in Asia in May are expected to hit a record 38.1 million barrels, according to Refinitiv Eikon data, but those shipments were arranged in previous months, when prices were more favorable for U.S. sellers. Arrivals are currently forecast at about 5.3 million barrels for June so far.
Going forward, traders expect more activity from China, which has resumed purchases of U.S. crude after a months-long hiatus due to risk of tariffs as Washington and Beijing attempted to negotiate a trade deal.
The United States reimposed sanctions in November on exports of Iranian oil but big buyers – China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece – had been granted waivers, which were ended this week.
“China’s interest in U.S. grades escalated following the end of the (Iran) waivers,” one source at an oil major said.
China’s Foreign Ministry said it has formally complained to the United States over its decision to end waivers.
Asia’s largest refiner Sinopec is set to receive its first U.S. crude oil cargo this week since halting imports in September.
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