US crude exports' four-week moving average hits more than one-year high

US crude exports over the four-week period ended on June 25 rose to a more than one-year-high as exporters have benefited from particularly low freight rates, the US Energy Information Administration showed June 30.

The four-week moving average for exports rose 292,000 b/d on the week to 3.546 million b/d, the highest four-week moving average reported by the EIA since the period ended on April 3, 2020, when it was reported at 3.554 million b/d.

The weekly export figure, meanwhile, was reported 66,000 b/d higher on the week at 3.717 million b/d, EIA data showed.

These high export levels come as freight rates on both VLCCs East and the trans-Atlantic Aframax market have been at low levels, but a recent narrowing of the Brent/WTI spread could begin to weigh on export flows despite the favorable freight environment.

Since June 11, the Brent/WTI swaps spread has averaged $1.67/b after falling to $1.43/b on June 30, well below the year-to-date average for the spread of $2.78/b. As the spread narrows, WTI-based crudes are generally seen as less competitive than their Brent-based counterparts.

Fixing activity slows

Long-haul freight rates out of the USGC headed to Asian destinations have reached three-year lows as fixing activity for late July and early August dates slowed significantly over the past few weeks.

There were 11 spot voyages booked for VLCCs loading in the USGC and heading to various Asian destinations for June, while 8 have been booked for July, with only one of those ships set to load in the second half of the month, Platts fixture logs show. VLCCs making the long-haul runs out of the USGC are typically booked 15-45 days ahead of their negotiated laycan. In 2019, pre-pandemic, 20 VLCC USGC-Far East voyages were booked for loading in June and 12 in July.

Freight for the benchmark VLCC 270,000 mt USGC-China route was assessed June 30 at lump sum $4 million, sitting at its lowest level since May 1, 2018 for the eleventh consecutive trading session.

Rates have held at the $4 million level as shipowners battle an ample global position list and sluggish cargo inquiry to keep voyage rates from falling too far into the red amid steep bunker prices.

"Nothing has changed and volatility is minimal," a shipowner said of the depressed VLCC market.

Meanwhile, shipowners with Aframaxes in the Americas have struggled with acutely low rates and earnings since May 2021, as an increase in US domestic refinery runs amid pent-up gasoline demand pulled barrels that would have otherwise been exported, sources said.

Limited Aframax trans-Atlantic cargoes led to a building tonnage list in the Gulf of Mexico, with a shipbroker's position list showing on June 29 a total of 11 Aframaxes available in the USGC for a prompt laycan, and another 33 available to load between July 4-19.

Freight for the benchmark 70,000 mt USGC-UKC route averaged w78.23, or $13.33/mt, in May 2021, down from a March 2021 average of w103.91, or $17.67/mt.

"Domestic [refinery] runs continue to increase and get stronger...so that cuts back on exports," a freight trader said towards the middle of June.

"The only thing that I think looks positive for shipping is, with increasing [refinery] runs, (...) and sour crudes getting more expensive, maybe we'll start seeing more imports," he added.

Exports tough to work

While exports in recent weeks have remained at elevated levels, sources have noted that as we move into July and August, flows could wane as difficult economics take their toll – something perhaps alluded to by a lull in fixture activity.

"I think the arb was open in June and partially July," one market source said, "but shut in August and September."

Export economics even remain difficult for Mars crude via VLCCs. "Even with cheap freight, [Mars exports to Asia] still appears to be closed by 50 cents," adding that with crude draws currently observed in Cushing, there is less of a need to export.

Another trading source echoed the sentiment that exports from the US were "very tough to work" currently, while the low freight rates were "not enough" to make the economics more workable, likely leading to lower exports later into the summer.