A tight spread between international crude benchmarks Brent and West Texas Intermediate has depressed US crude export flows during the past four weeks, according to sources and data from US Customs and S&P Global Platts Analytics. However, low freight rates have created opportunities to move US crude cheaply.
The US exported 2.35 million b/d for the week ending April 5 – the lowest outflow since January 25, when 1.94 million b/d was exported, according to weekly data from the US Energy Information Administration. An estimated 2.28 million b/d of crude was exported from the US last week, according to Platts Analytics and data from trade flow software cFlow. This is the lowest estimated total reported since February 8. US crude exports were hindered in late January and February as dense fog along the Gulf Coast impacted vessel traffic.
Values for US crudes for export have been pressured lower on a narrow spread, which indicates a decrease in the competitiveness of WTI-based crudes on the global market as they become closer in price to their Brent-based peers.
The front-month swap spread last week reached $6.20/b – its narrowest level since July 26, 2018. However, the spread began widening again, reaching $6.99/b to end the week. The 30-day rolling average of the spread is about $7.70/b.
Despite the relatively narrow Brent-WTI spread, sources have said low freight rates and favorable margins elsewhere could help increase the flow of US crude to international destinations, as the costs to transport barrels are at multi-month lows.
“Brent/WTI has sold off quite a bit the last couple days since [crude inventory statistics], so [the arbitrage] is looking kind of workable,” one market source said last week.
“Ebbs and flows. If barrels back up [in Houston, WTI at the Magellan East Houston terminal] will weaken and the arbitrage opens,” another market source said about arbitrage opportunities. “One quiet period does not make a trend.”
Low freight rates continue to provide a glimmer of opportunity for crude exports.
Freight for Aframaxes originating in the US Gulf Coast have reached their lowest level since August 2018 amid a buildup of tonnage in the region. Lists have lengthened on the back of weaker US crude export volumes and reduced regional Aframax voyages following US sanctions on the Venezuelan oil sector, shipping sources have said.
Freight for Aframaxes on the 70,000 mt US Gulf Coast-UK Continent route was last assessed Friday at Worldscale 67.5, or $12.35/mt, last assessed lower on August 17, 2018, at $11.61/mt. Freight for the route has averaged $13.2680/mt so far in the second quarter of 2019, $7.4820/mt, or 36.1% lower than Q1 2019.
A flurry of fixture activity was reported last week, reflecting depressed freight rates amid an overtonnaged market.
ExxonMobil was seen fixing eight, prompt-loading crude cargoes aboard Aframax vessels that collectively can carry roughly 3.2 million barrels of oil for a trans-Atlantic voyage, according to S&P Global Platts fixtures data. Most of the vessels were positioned off the Gulf Coast near Galveston and Port Arthur on Monday, according to cFlow. At least one, Songa Coral, was observed Monday docked for loading at the Energy Transfer terminal in Nederland, Texas.
VLCC rates have also been at depressed levels, with freight for the 270,000 mt USGC-China route reaching its lowest level since July 2018 last week at lump sum $4.5 million. Rates for the long-haul route have firmed however, rebounding on the back of an uptick in cargo inquiry and limited ship availability. Freight climbed $250,000 Friday to lump sum $4.85 million, with shipping sources talking rates as high as $5.2 million Monday morning.
VLCC loading terminals in the US Gulf Coast such as Moda Midstream at Ingleside, Texas, and Enterprise Texas City have maintained loading levels in recent weeks – with a four-week average of 1.5 million barrels per week and 789,000 barrels per week, respectively.
However, export activity has been limited at the Louisiana Offshore Oil Terminal, which is the only location in the Gulf Coast where VLCCs can be fully loaded without the need for ship-to-ship transfers. The last VLCC reported to load and sail from LOOP was the Dilam on March 13. That vessel is set to arrive either in Singapore or Northern China later this month, according to cFlow.
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