In the LOOP: Drop in US crude freight rates entices Asian buyers

US light sweet crudes such as WTI Midland and Bakken have been offered into Asia at lower premiums in recent months amid a drop in freight rates from the US Gulf Coast to the Far East, sources in Asia said Monday.

Taiwan's CPC was heard to have bought 4 million barrels of WTI Midland crude from an unknown seller for March Loading. The cargo was priced around a $2.25/b premium to Dated Brent on a CIF Taiwan basis. CPC seems to enter the US Gulf Coast market when prices are ideal. The company last bought 4 million barrels of WTI Midland for January loading. But CPC did not seek any WTI spot cargoes for February.

WTI Midland's differential to WTI cash averaged minus $7.39/b in December, down from minus $5.78/b in November and lower than minus $3.95/b so far in January, according to data from S&P Global Platts.

While most January cargoes have already been sent and few may be sent to Asia in February, March could bring a flurry of US Gulf Coast-to-Asia fixtures as the opportunity reemerges. Upcoming spring refinery maintenance season in the US Gulf Coast region could make more domestic crude barrels available for export, with April differentials for both sweet and sour grades heard to be trading lower.

On Monday, WTI MEH March volumes were assessed at WTI cash plus $5.15/b, with April volumes heard to be traded 25 cents/b lower at plus $4.90/b. Medium sour grade Mars was assessed at WTI cash plus $5.05/b for March volumes, with April volumes heard to be trading 35 cents/b lower. Lower second-month differentials imply weaker demand in April for domestic crude volumes.

US crude continues to make inroads in other countries in Asia. Vietnam's 148,000 b/d Dung Quat refinery is set to receive its first crude cargo from the US when 1 million barrels of WTI crude will arrive there in April. If testing of that initial cargo is positive, the refinery will likely take more WTI in the future.

Freight rates for VLCCs heading to China out of the US Gulf Coast on a 270,000 mt basis have fallen $400,000 since they reached their January peak at lump sum $7.4 million or $27.41/mt, ($3.54/b) with indications last heard Monday morning in line with the last assessed level of lump sum $7 million or $25.93/mt ($3.34/b).

Overall, freight rates have been weaker over the past month, averaging lump sum $6.94 million or $25.70/mt ($3.32/b) so far in January, compared to $8.26 million or $30.59/mt ($3.95/b) in December 2018. VLCC rates from the US Gulf Coast to Singapore typically follow rates to China, but are typically $1 million cheaper than those to China.