U.S. crude oil ex­ports to Asia soar, com­pli­cat­ing OPEC’s ef­forts

Tehran Times - - ENERGY - By Clyde Rus­sell

U.S. crude oil is flood­ing into Asia, and may con­tinue to do so as the ar­bi­trage win­dow that was ini­tially cre­ated by Hur­ri­cane Har­vey re­mains open, even though the dis­rup­tion from the costli­est storm to hit the Gulf of Mex­ico has faded.

A record amount of U.S. crude is sched­uled to ar­rive in Asia in Novem­ber, ac­cord­ing to ves­sel-track­ing and port data com­piled by Thom­son Reuters Oil Re­search and Fore­casts.

The data show 19.7 mil­lion bar­rels of U.S. oil is due to ar­rive across Asia in Novem­ber, equiv­a­lent to about 657,000 bar­rels per day (bpd). The data are fil­tered to show only ves­sels that are cur­rently un­der­way, and those that are dis­charg­ing or have dis­charged their car­goes.

This is more than a 50 per­cent jump on the 427,000 bpd that was off­loaded in Asia in Oc­to­ber, and also above the pre­vi­ous record-high month for U.S. crude ship­ments to Asia of 541,000 bpd from June.

It also ap­pears that De­cem­ber will be an­other month of strength, with 11 ves­sels car­ry­ing a com­bined 16.5 mil­lion bar­rels of crude al­ready en route from U.S. Gulf ports to Asia.

When Hur­ri­cane Har­vey struck the U.S. Gulf coast in late Au­gust one of the ini­tial im­pacts was a drop in the price of West Texas In­ter­me­di­ate (WTI), the main U.S. light crude grade.

At that time it be­came likely that U.S. ex­ports to Asia would ramp up given that WTI’s dis­count to the global bench­mark light crude, Brent, widened to $5.46 a bar­rel at clos­ing prices on Aug. 29.

This was enough of a gap to over­come the higher freight rate to ship from the Gulf coast to Asia, com­pared to sim­i­lar grades of crude from African pro­duc­ers such as An­gola and Nige­ria.

WTI’s dis­count to Brent had been just $2.48 a bar­rel at the end of July, which made it harder to make a profit ship­ping U.S. crude to Asia.

But in­stead of nar­row­ing back as re­finer­ies re­cov­ered along the U.S. Gulf coast af­ter Har­vey and started pro­cess­ing crude again, WTI’s dis­count to Brent has re- mained at el­e­vated lev­els.

At the close of Nov. 10, Brent com­manded a $6.78 pre­mium over WTI, which is even higher than what it was in the im­me­di­ate af­ter­math of Har­vey.

This makes it likely that U.S. crude will con­tinue to flow to Asia at ro­bust lev­els, as the dis­count pro­vides a prof­itable trade for U.S. shale drillers and other oil pro­duc­ers.

Chang­ing mar­ket dy­nam­ics

While the vol­umes aren’t enough to threaten the po­si­tion of Asia’s ma­jor sup­pli­ers, such as OPEC heavy­weights Saudi Ara­bia, Iran and Iraq, as well as Rus­sia, it is enough to com­pli­cate the ef­forts of OPEC and its al­lies to re-bal­ance crude oil mar­kets and send prices sus­tain­ably higher.

For ex­am­ple, China, the world’s top crude im­porter, has been ramp­ing up pur­chases from the United States, tak­ing the equiv­a­lent of about 127,000 bpd of U.S. crude in the first nine months of the year.

While this makes the United States only China’s 15th big­gest sup­plier, it rep­re­sents a stag­ger­ing 880 per­cent in­crease on the same pe­riod in 2016.

Other non-tra­di­tional sup­pli­ers to China have also been mak­ing in­roads as OPEC and its al­lies acted to curb out­put.

Im­ports from Malaysia are up 500 per­cent, those from Bri­tain by 95 per­cent and from the Repub­lic of Congo by 459 per­cent.

In con­trast, for­mer top sup­plier Saudi Ara­bia has seen a drop of 0.6 per­cent in the first nine months of the year com­pared to the same pe­riod in 2016.

China’s im­ports from Iran are up by a mod­est 4.2 per­cent, while those from Iraq are 5.8 per­cent higher, both fig­ures well be­low the over­all in­crease of 12.2 per­cent in crude im­ports in the first three quar­ters of the year.

What the Chi­nese cus­toms and the ves­sel-track­ing data show is that the on­go­ing dis­count of WTI to Brent, cou­pled with the out­put re­stric­tions by OPEC and its al­lies, are cre­at­ing new mar­ket dy­nam­ics in Asia.

The prob­lem for OPEC and other ma­jor crude sup­pli­ers to the world’s top im­port­ing re­gion is that once mar­ket share is sur­ren­dered, it may prove dif­fi­cult to win back.

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