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US crude exports jump despite Europe, Asia arbitrage pressure

Highlights

US crude exports climb 1.1 million b/d to 3.36 million b/d: EIA

European oil demand under pressure amid renewed lockdowns

Houston — Weekly US crude exports jumped 1.1 million b/d to 3.36 million b/d over the week ended on Jan. 22, according to data from the US Energy Information Administration Jan. 27, despite difficult arbitrage economics.

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The rise took exports to their highest average weekly export level since the week ended on Jan. 1, and kept the four-week moving-average above 3 million b/d.

The arbitrage for WTI MEH crude into Rotterdam against local Forties crude fell to a minus 34 cents/b incentive on Jan. 26 and has averaged just a 4 cents/b incentive through the first 26 days on January, according to the S&P Global Platts Crude Arbflow calculator. Through December, by comparison, the arbitrage incentive averaged 57 cents/b, according to Platts Arbflow.

Refinery runs and margins are expected to remain weak through 1Q21 in Europe as demand recovery remains slow and product stocks are generally high, according to S&P Global Platts Analytics.

Furthermore, Europe could already be facing a "double-dip" recession following the tightening of COVID-19 restrictions. The early release of the euro area composite Purchasing Managers Index was reported at 47.5 for January, implying a more negative outlook from the previous month. Indeed, the euro area composite PMI averaged just 48.1 in 4Q20, showing the depressed outlook held at the end of 2020 was continuing into January 2021.

Platts Analytics expects European oil demand to fall 5-6 million b/d lower during January and February of 2021 compared to the same time in 2019. Some recovery, however, is expected after mid-year.

The arbitrage for WTI MEH crude into Northeast Asia against local ESPO crude has also come under pressure in recent days, however, values for ESPO crude have fallen significantly amid a larger monthly supply of ESPO in the market and limited demand amid recent lockdowns in China.

WTI MEH against ESPO in Japan fell to minus 74 cents/b on Jan. 26, down from a minus 26 cents/b incentive just the day prior. Through the first 26 days of January, the arbitrage incentive averaged 60 cents/b, and in December, the incentive averaged $1.02/b. ESPO has weakened significantly in recent weeks to a 75 cents/b premium to Dubai on Jan. 27, down from plus $2.70/b on Jan. 7.

US crude exports in 2021 face further pressure from falling US crude production and recovering refinery runs, which would leave fewer barrels available for export. Despite these headwinds, Platts Analytics expects US crude exports to average more than 2 million b/d in 2021.