VLCC spot liquidity on PG-USGC route wanes as trade flows shift

Spot liquidity in the once crucial crude oil shipping corridor for VLCCs from the Middle East to the US Gulf Coast has fallen by almost 70% over the past five years as the US flips from being a major crude importer to exporter.

Prior to 2017, the route averaged slightly over 20 fixtures/month, but this has fallen progressively to 9.3 fixtures/month in 2020 and 6.3 fixtures/month to date in 2021, according to Platts trade flow analytics software cFlow.

"The route has not seen much volume in the spot market [in 2021]," a VLCC broker said.

Fundamental changes in the trade flow of crude oil has dried up spot liquidity on the PG-USG VLCC route as the US drastically reduces dependency on imports from the Persian Gulf and instead ramps up exports of its domestically-produced crudes.

Diminishing spot market

In addition, Middle East crude suppliers now move almost all of their cargoes to the USGC on their own tonnage or under Contract of Affreightment or COA deals, reducing spot availability on the route.

According to market sources, Saudi Aramco's shipping arm Bahri Oil moves all the crude cargoes from the Saudi Arabian producer destined for the USGC on its tonnage, leaving no room for active spot trading.

Bahri Oil operates VLCCs with a total fleet capacity of 11.6 million DWT and is the exclusive provider of VLCC transportation for Saudi Aramco's CIF sales, according to the company's website.

Of the 63 crude oil shipments tracked on the PG-USGC route to date in 2021, only 20 were non-Bahri tonnage, according to Platts CFlow data.

In 2019, 46 shipments were undertaken by Bahri-owned VLCCs on the route and 34 by non-Bahri ships.

US imports decline

OPEC member nations supplied 85% of US crude oil imports in 1997. By 2020, that share had fallen to 14%, with Saudi Arabia contributing 8%, according to the US Energy Information Administration.

In fact 2019 was a watershed year, with US crude oil imports from the Persian Gulf plunging 41.2% year on year to 275.43 million barrels after averaging 572.4 million barrels/year between 2013 and 2017, according to Kpler.

OPEC crude exports to the US have long been mainly light to medium grades. The domestic production surge in the US in recent years has also been of light grades, displacing the need for imports, while imports of heavier grades from Canada have also steadily increased, and peaked in 2019, according to the EIA.

While 60% of crude exports from the Persian Gulf went to the USGC between 2013 and 2017, the percentage fell to 50% in 2018. In 2019, the US West Coast overtook the USGC in the volume of imports sourced from the Persian Gulf, according to Kpler.

Although the USWC's share fell below that of USGC in 2020, it has regained the No. 1 position to date in 2021.