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In the LOOP: US Gulf Coast VLCC exports ramp up amid wider price spreads

Wider price spreads between US crudes and Dubai-based crudes have opened arbitrage opportunities to export US crude to Asia, leading to a recent increase in VLCC exports out of the US Gulf Coast, S&P Global Platts data shows.

The second VLCC to partially load in the Houston Ship Channel was seen docked at the Enterprise Products' Texas City facility on Monday, according to cFlow, Platts' trade flow software. The Eagle Victoria, with a capacity of more than 2 million barrels, arrived on Saturday. A cargo was fixed to the vessel for mid-July loading by SK Energy for delivery to South Korea for a lump sum of $4.8 million, according to Platts fixtures report.

A spokesman for Enterprise did not return a request for comment Monday.  The FPMC C MELODY, another VLCC, was recently partially loaded in the Enterprise Products' Texas City dock on the Houston Ship Channel -- marking the first time a VLCC has loaded and sailed from any port in Texas. The vessel was partially loaded at Texas City and then a ship-to-ship transfer completed the loading in deeper water offshore Galveston. The vessel was in the South Atlantic Ocean on Monday and is heading to West Coast India, according to cFlow.

It is unknown what crude grade was loaded on the VLCCs in Texas City. However, West Texas Intermediate Midland crude in Houston, with an API of around 41 degrees, as well as Eagle Ford crude with an API of 45 is known to have been offered for loading in July at WTI in Houston (MEH) plus 75 cents/b.

The Texas-loading VLCCs join another two that have loaded at the Louisiana Offshore Oil Port (LOOP) within the past month -- bringing the total of four to be loaded at LOOP so far this year.

The Anne, a VLCC with a capacity of 2.02 million barrels of crude, sailed on July 4 to the Dutch Antilles island of St. Eustatius, where it was in port for two days before sailing again, this time with a destination of the Huizhou Mabianzou Terminal in China.

Another VLCC, Eagle Vancouver, loaded and then sailed from LOOP on June 20. The vessel has two destinations listed on cFlow Qingdao, China, and Cochin, India.

Widening WTI-Dubai and LOOP Sour-Dubai spreads could be behind the increased exports out of the US Gulf Coast. A wider spread between WTI-based crudes and more expensive Dubai-based grades makes US crudes more competitive with Middle East regional grades.

The LOOP Sour-Dubai spread has been mostly widening since the spring. The 10-day moving average was $4.13/b on Friday compared with $3.90/b one month ago and $2.88/b two months ago.

The WTI MEH-Dubai spread has been more volatile in recent months. It reached a wide point of $5.93/b on June 22 but has narrowed back in in July, with WTI at a 20 cents/b premium to Dubai on Friday. The 10-day moving average was about 33 cents/b on Friday.

The narrowing of the WTI MEH-Dubai spread may be an indication that there may be fewer VLCC exports of light sweet US crudes to Asia in August.

China also may curb their buying of US crudes in light of recently imposed tariffs.