US crude exports hit record highs in January and February, as domestic crude price discounts to Brent and Dubai widened significantly, an S&P Global Platts analysis of government data showed Tuesday.
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US Census Bureau data showed US crude exports rising by 304,000 b/d to 746,000 b/d in January, which was followed by a report by the US Energy Information Administration showing US crude exports averaging 900,000 b/d in the four weeks ending February 24.
Congress' December 2015 decision to lift restrictions inaugurated a new era in US oil trade, with exports averaging an annual record of 521,000 b/d in 2016.
Additionally, rising production from the Permian Basin in West Texas, in combination with a significant buildout in infrastructure to access export markets, has deepened price discounts for US light sweet crudes, allowing US crude exports to take off.
"It's pure economics," said Tony Starkey, manager of energy analysis at Platts Analytics. "WTI/Brent finally widened enough to make some additional exports profitable since the export ban was lifted. There was also an uptick in exports back in August/September 2016 which aligns pretty well with when the WTI/Brent spread last flirted with the $3/b level."
The WTI/Brent spread averaged $2.24/b in January, out from $2.03/b in December and 81 cents/b in November, making US crudes more competitive in Brent-linked markets across the Atlantic Basin.
WTI flipped to a discount of 7 cents/b to Dubai in December, and that spread blew out to 95 cents/b in January as OPEC output cuts tightened the Middle Eastern sour crude market.
Likewise, a widening discount of Mars crude to Dubai in recent months has boosted US crude exports to Asia.
The prompt Mars discount to Dubai averaged $3.05/b in January and $2.71/b in February, widening out from $1.95/b in December, and 18 cents/b in February 2016, Platts data shows.
"Not only are supply reductions increasing the price of the Dubai/Oman benchmark, but recent increases in US federal offshore Gulf of Mexico production could also be contributing to a relative decrease in the Mars price," EIA said in its Short Term Energy Outlook. "Lower US refinery runs during maintenance season are also reducing domestic crude oil demand in the first quarter of 2017 and freeing up more oil for export."
The Platts spot fixtures logs, in conjunction with cFlow, Platts trade flow software, point towards healthy exports to Asia in February, with a spate of Suezmaxes fixed to carry US crude to the region.
BP fixed the Sonangol Kassanjie for a February 12 departure to Singapore, Koch fixed the Stena Superior for a February 18 departure to Kawasaki, Trafigura booked the Front Challenger for a February 8 departure to Singapore, and Mercuria fixed the Antigua 1 for a February 22 departure to Singapore.
As a result of rising US exports, the Americas Suezmax tanker market is becoming less impacted by the West African market, the largest loading region globally for this tanker segment.
"With all the exports out of the USGC, this market is getting to be a market of its own," a US shipbroker focusing on the Suezmax sector said Tuesday. "US producers are very agile."
WTI CRACKING MARGINS IN ARA COMPETITIVE
With US crudes more competitive in both European and Asian markets, the Census data showed January US exports healthy across the board.
US crude exports to Europe jumped 87,000 b/d to 183,000 b/d, just off the record 191,000 b/d set in September 2016.
France, Italy, the Netherlands and Spain drove the increase in US exports to the region, while exports to the United Kingdom edged lower but remained healthy.
Platts cracking margins for Light Houston Sweet -- which represents WTI at Houston terminals -- in the Amsterdam-Rotterdam-Antwerp refining hub rose to average $4.75/b in January, up from $2.99/b in December, making the grade more competitive in the region than Forties at $4.33/b.
Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.
Of the 39,000 b/d of US crude exported to Spain, the Census data shows 17,000 b/d was foreign-produced and under 25 degrees API, most likely oil sands crude from Alberta. Spain is home to a considerable amount of coking capacity, by European standards, making it an ideal destination for heavier barrels.
BP installed a coker unit at its Castellon refinery in 2009 and Repsol has coking capacity at its Cartagena and Bilbao refineries.
Platts spot tanker fixtures logs in cross reference with cFlow show Shell fixing an Aframax, the Atlas Voyager, for a January 11 departure from Freeport, Texas, to Cartagena, Spain.
The coking margin for Western Canadian Select in the Mediterranean averaged $8.96/b in January, up from $8.29/b in December.
Looking at Asia, exports to China remained robust at 65,000 b/d, slightly off the record 76,000 b/d set in November, while Japan received a record 62,000 b/d, having not imported US crude since October.
Platts logs of spot fixtures show that BP fixed the Awtad VLCC for a January 10 departure on the USGC-Far East voyage, with cFlow showing the captain's destination as Ningbo, where Sinopec operates a 320,000 b/d refinery and CNOOC operates 160,000 b/d refinery.
US crude exports to Singapore rose to 55,000 b/d, but were still considerably lower than the record 99,000 b/d set in September 2016.
Exports to Latin America also increased, with shipments to Colombia averaging 47,000 b/d, having dried up since November. Peru and Panama also imported US crude, according to the data.
Finally, exports to Canada rebounded to 275,000 b/d in January, from 196,000 b/d in December.
US crude exports will likely remain strong, as US producers boost activity in the Permian, while coordinated OPEC/non-OPEC output cuts open up additional opportunities for US barrels.
On Monday, Platts reported that OPEC production fell to 32.03 million b/d in February, bringing average compliance with the agreed cuts over the first two months of the year to 98.5%.
"The other thing helps to drive [rising exports] is that this is the first time since the export ban was lifted that the rest of the world might actually need some of our crude, as the oversupply situation has begun to iron itself out," Starkey said.
Chinese independent refiners, who received crude import quotas for the first time last year, are looking to continue diversify their crude slates, regional refining sources have said.
A source at Wonfull Petrochemical said that refiner was looking to import 1 million barrels each of Mars and Thunderhorse in April, based on favorable economics.
Refining margins for North American crudes remain strong. Light Houston Sweet cracking margins in the ARA hub averaged $5.53/b in February, remaining at a premium to Forties and Cabinda margins.
Spanish refiners may have looked to bring in more Canadian heavy crude in February, with the Mediterranean coking margin for Western Canadian Select rising to $10.33/b from $8.96/b.
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