London — Crude oil exports out of the US Gulf Coast have shrunk on soaring freight rates in recent weeks, with market participants pegging volumes around 1.7 million to 1.8 million b/d in November -- including about 600,000 b/d destined for the European market.
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Register NowUS crude exports had topped 2 million b/d on average between May and July, according to the latest data from the US Energy Information Agency.
"The local demand in the US remains strong, margins are OK, but clearly arbitrage demand isn't as good," a trader said.
Freight rates rose across all ship classes in the Americas dirty tanker market, recently. Aframax rates were boosted by weather-delayed itineraries, increased lightering activity and export demand as well as an uptick in movement between the East Coast of Mexico and the USGC.
The combination of these factors moved rates for the USGC-UKC route Friday well above the highest level since S&P Global Platts began assessing the route in March 2018. Freight moved 45 worldscale points higher to w200 Friday, rising for the ninth consecutive session and over 110% higher from October 5, the day before rates began their climb upwards.
Arbitrage flows from the US Gulf Coast to Asia were also heard to be constrained by elevated freight rates, with traders talking of a closed arbitrage of late, despite healthy appetite for both sweet and sour slates overall, and as Asian refiners showed willingness to pay up for crude oil.
"[The Chinese] market is hot, even for January arrival, but since US crudes are not being brought here anymore there is demand for [South American] or WAF etc." said an arbitrage crude seller.
Sources active in Asia however said that reluctance to import US crude may also be attributed to higher financing costs incurred by rising outright prices, rather than solely due to expensive freight rates.
On Friday afternoon however, a US-based crude trader suggested that falling MEH differentials (ie, for WTI Midland at the Magellan East Houston Terminal) could give US crude exports a fresh boost, going forward.
"MEH versus Brent corrected significantly and as a result the market is pricing exports favorably again. This is bad news for the North Sea," the trader said, referring to looming pressure on BFOE differentials.
The North Sea crude market has fared relatively well of late despite competition from other parts of the Atlantic Basin. BFOE grades performed particularly well thanks to a supportive arbitrage east.
North Sea Forties was assessed at a 97.5 cents/b premium to Dated Brent Friday, having slipped just below the $1/b bar reached Tuesday and Wednesday.
--Staff reports, newsdesk@spglobal.com
--Edited by Maurice Geller, maurice.geller@spglobal.com