As the end of the year approaches, crude export activity from the US Gulf Coast is heating up, driven by favorable arbitrage spreads and underlying global supply concerns.
Total US crude exports for the week ended December 15 reached 1.9 million b/d, the highest weekly level since late October, according to data from the US Energy Information Administration. A high volume of these exports is coming out of Houston and Corpus Christi, Texas, to be sold into markets in the UK and Continental Europe, as well as India and Asia.
Both sweet and sour domestic grades have benefited from the uptick in export demand as both the Brent/WTI and Dubai/WTI spreads have widened. Since the start of December, Brent’s premium over WTI has increased $1.11/b to $6.48/b as of Wednesday afternoon. As this spread widens, WTI-based domestic light sweet grades like WTI MEH become more competitive with comparable Brent-based North Sea and West African grades.
At the same time, Dubai’s premium has also increased over WTI. Since the start of December, the Dubai/WTI spread has widened 92 cents/b to end at $3.54/b as of Wednesday afternoon. As Dubai’s premium increases, WTI-based domestic medium sour grades like Mars and Southern Green Canyon become more economic to export to regions like Asia and India, where they will compete with Dubai-based Middle Eastern grades.
MORE PERMIAN BARRELS FLOW TO THE UK
Supply concerns in the UK have stemmed from the closure of the Forties crude pipeline earlier in December following the discovery of a fracture. As a result of the closure of the pipeline, which transports crude throughout the mainland UK, several offshore North Sea crude platforms have been temporarily shut. As supply has tightened, refiners have looked to Permian light sweet crude WTI MEH to fill in the supply gaps.
Two dirty cargoes are set to be delivered from Houston to the UK in early January, according to data from cFlow, Platts trade-flow software. An additional cargo is set to be delivered in early January in Rotterdam.
As export demand has increased for WTI MEH, the grade has risen 10 cents/b in value to WTI cash plus $4.70/b, based on a trade heard early Thursday morning.
UPTICK IN ASIA DEMAND FOR BOTH SWEET, SOUR GRADES
Demand for both sweet and sour USGC barrels has increased in India, China, Japan and South Korea as OPEC cuts have tightened global supply.
In early January, two dirty cargoes are set to arrive in Vadinar, India, and more could head that way with at least two more crude tenders out, according to a market source. In early August, Indian state-run refiner Bharat Petroleum Corp. purchased its first cargo of WTI Midland crude. Indian refiner Reliance Industries Ltd. followed suit in early October and also imported its first cargo of the Permian light sweet crude in addition to a cargo of Eagle Ford crude.
Recent fixtures reports show a cargo of USGC crude bound for West Coast India set to load December 24 and a second cargo of regional crude bound for the same region set to load January 5.
South Korea, China and Japan have also taken in increasing volumes of USGC sweet and sour crudes. Two cargoes of USGC crude are set to be delivered in Qingdao, China, in early January, according to cFlow data. With China’s September crude throughput having hit a record high of 12.06 million b/d, several market participants expect more USGC crude to flow that way in coming months.
Additionally, two dirty cargoes are set to arrive in South Korea in early January, and one cargo is set to arrive in early January in Japan, according to cFlow. As South Korea’s imports of Iranian crude have steadily decreased in recent months, more USGC sour crude like Mars and Southern Green Canyon has stepped in to fill the supply gap.
Despite the uptick in demand for medium sour grades, the assessed values of both Mars and SGC have fallen since the start of December. Mars has lost $1.30/b since the start of the month to end at WTI cash plus $1.75/b as of Wednesday afternoon. SGC is down $1.35/b since the start of the month to WTI cash plus $1.05/b as of Wednesday afternoon.
Source: PlattsPrevious Next
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