In this list
Oil | Shipping

Feature: USGC crude exports flowing despite 128% VLCC freight spike

Commodities | Oil | Crude Oil | Refined Products | Jet Fuel

Will vaccine passports bring the jet fuel market back to life?

Electric Power

Platts Forward Curves – Gas and Power

Oil | Crude Oil | Coronavirus | Energy Transition | Macroeconomics

37th Asia Pacific Petroleum (APPEC 2021)

Oil | Crude Oil | Refined Products | Fuel Oil | Gasoline | Jet Fuel | Shipping | Tankers

Colonial Pipeline confirms cybersecurity attack, temporarily halts operations

Agriculture | Grains

Sentiment keeps swelling global grains prices, but uncertainty remains

Feature: USGC crude exports flowing despite 128% VLCC freight spike

Houston — Total volumes of US-origin crude exports are expected to see minimal impacts from spike in US Gulf Coast-loading VLCC freight rates of more than 128% since September 25, as a combination of geopolitical and pre-IMO 2020 factors reduced the VLCCs fleet capacity by 15%.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Marginalized VLCC tonnage includes 42 COSCO units following US sanctions on two affiliates of COSCO Shipping Co. and 38 VLCCs owned by the National Iranian Tanker Company, an S&P Global Platts Analytics Spotlight report showed Monday. It also includes 24 VLCCs currently used for floating storage of low-sulfur bunkers or low-sulfur blending components to facilitate the switchover from 3.5% sulfur to 0.5% sulfur bunkers by January 2020, and 20 units currently dry docked for scrubber installations ahead of the IMO 2020 deadline.

Yet, the initial spark that fueled the pre-IMO 2020 storm were the US sanctions on tonnage of COSCO Shipping Tanker (Dalian) and COSCO Shipping Tanker (Dalian) Seaman & Ship Management Co., which sent the cost of taking VLCCs out of the USGC to unprecedented highs over the past two weeks.

S&P Global Platts on Tuesday assessed freight for the key VLCC 270,000 mt USGC-China route at lump sum $18 million, up 128% from September 25 -- the day before the sanctions news emerged -- after peaking at $21 million on Monday.

The arbitrage window for bringing US-origin crude into Asia Pacific markets remains adamantly shut since VLCC freight hit $20 million on October 11, Platts Analytics data showed. Arbitrage opportunities for other key crude grades such as West Africa-loading Bonny Light and Persian Gulf-loading Murban also remain firmly shut.

"If freight rates stay this high then US crude prices will have to fall," Sandy Fielden, Director, Oil Research, Morningstar Commodity Research, said last Thursday at the Crude Oil Quality Association conference in Dallas. "No one is going to buy crude that is more expensive than what is available in their immediate region. It's a world market and the only way for us to compete is through price."

The economics of taking US-origin crude will have to adjust to keep export barrels moving, likely leaving FOB prices to absorb the increase in freight, according to Platts Analytics.

"Likely you won't see traders coming to the market to take ships but the SK Energy, Oxy [Occidental], and HOB [Hyundai Oilbank] system guys will still need to take ships," a shipbroker said.

Volatility in the freight market has impacted most exported crudes around the world and the US grades are no exception. WTI FOB cargoes along the US Gulf Coast have plunged lower during the past week and were assessed Tuesday at a $2.83/b discount to the Dated Brent strip and a $2.40/b premium to the WTI NYMEX strip, which reflects a 15-45 day loading window. That is compared with the differential's high this year of WTI NYMEX strip plus $8.80/b, which was reached on May 28.

A majority of the exports that occurred last week were booked more than a month ago, when freight rates were much lower. New long-haul pipelines are bringing more light sweet crude from the Permian Basin to the US Gulf Coast and many of those barrels must be exported, which puts added pressure on the export market.

US crude oil exports rose by nearly 535,000 b/d for the week ended October 4, to reach over 3.4 million b/d, which was their highest level in about eight months, according to data released October 9 by the US Energy Information Administration.

Some crude traders expect to see some decline in US crude export volume as spot FOB cargoes are facing difficult pricing dynamics. However, delivered cargoes and contract deals will continue to keep exports flowing.


Industry participants are left questioning the sustainability of the rally, attempting to predict the day when market fundamentals will take a bearish turn. "It's going to take a while I think," a shipbroker said.

A cocktail of events have driven bullish sentiment in the VLCC market heading into the third quarter and the fourth quarter of 2019, including a reduction in fleet utilization in the spot market from Iran sanctions and IMO 2020 preparations as well as an overall uptick in crude exports moving out of the USGC on VLCCs.

Looking at the overall global VLCC fleet, which contains 792 ships worldwide, according to Platts Analytics, the combined events of the past year have led to a reduction of about 124 units or 15% of the fleet size available to the spot market, not counting the ships that could be affected by potential secondary sanctions on Venezuela.

The Forward Freight Agreement market would suggest rates for the USGC-China route to stay in the double digits at least moving into the next month, with the November contract for the 270,000 mt USGC-China route last traded at $44/mt, or a lump-sum equivalent of $11.88 million.


There is a possibility of an increased number of US-origin crude exports being diverted to Europe to avoid major costs on the typically Asia-destined VLCCs, however firming in the VLCC segments has begun to trickle down into smaller tonnaged ships.

The arbitrage for bringing WTI crude into Europe is open at 82 cents/b compared to UK origin Forties crude.

Long-haul Suezmax rates have reached rates seen by VLCCs less than two weeks ago, with the 130,000 mt USGC-Singapore route last assessed Tuesday at lump sum $9 million. On the trans-Atlantic front, rates have been slower to rise with the times as owners are more willing to make the shorter voyage to Europe, with anticipation of capitalizing on a bullish market instead of taking their ships out of the market for extended periods of time.

The cost of taking a Suezmax on a 145,000 mt USGC-UK Continent run was last assessed Tuesday at w180, or $32.18/mt, up 177% from the average rate for September.

--Catherine Wood,

--Laura Huchzermeyer,

--Barbara Troner,

--Edited by Kshitiz Goliya,

2nd Annual North American Crude Oil Exports Summit | October 28-30, 2019 | Houston, Texas

The summit sets a unique global agenda, inviting international buyers and North American producers, midstream participants and ports to examine the changing dynamics of US crude quality, connectivity, pricing and new markets.

Find out more