Thursday, September 22, 2016
Since the removal of the final significant restrictions on exporting U.S. crude oil in December 2015, the number of countries receiving exported crude from the nation has risen sharply, the Energy Information Administration (EIA) said in August. These exports have occurred despite a sustained narrow price premium of international crude oil prices over U.S. domestic prices, the many costs associated with arranging cargos for export, and falling U.S. crude production.
In the first five months of 2016, U.S. crude exports averaged 501,000 bbld, 43,000 bbld, or 9%, more than the full-year 2015 average. Nonetheless, this rate of growth is significantly slower than before restrictions were lifted, when year-over-year growth from 2012 to 2013 was 100%, and then 162% from 2013 to 2014. However, after the lifting of restrictions in 2015, the number and variety of destinations for U.S. crude oil exports has changed. So far in 2016, crude oil was exported to 16 different nations, six more than 2015 and double the number of destinations in 2014.
Before the removal of export restrictions, most U.S. crude shipments were to Canada. In recent years, oil exports to destinations other than Canada were reexported volumes of foreign crude or an occasional cargo of Alaskan crude, which was exempt from export restrictions. In March 2016, total oil exports to countries other than Canada exceeded those to Canada for the first time since April 2000, 259,000 bbld versus 249,000 bbld. In May 2016, when total U.S. crude oil exports reached 662,000 bbld, exports to countries other than Canada exceeded exports to Canada by 46,000 bbld.
Aside from Canada, the largest and most consistent U.S. crude export destination for the first five months of 2016 has been Curacao, located in the Caribbean Sea north of Venezuela. Exports averaged 54,000 bbld through May. Petróleos de Venezuela (PDVSA), the state-owned oil company of Venezuela, operates the 330,000-bbld Isla refinery on Curacao, as well as crude and petroleum product storage facilities on the island. Trade press reports indicate that U.S. crude exports to Curacao are likely being used as diluent, blending a light U.S. crude with a heavy Venezuelan crude, for either processing at the Isla refinery or for re-export to PDVSA customers.
Exports to the Netherlands, the second-largest non-Canadian destination for U.S. crude oil, averaged 39,000 bbld through the first five months of this year. Two of the three cities that collectively make up the large refining and petroleum product trading hub of Amsterdam, Rotterdam, and Antwerp, known as ARA, are located in the Netherlands. Other Western European nations, including Italy, France, and the United Kingdom, also rank high on the list of U.S. crude oil export destinations.
The Marshall Islands, an island group in the Pacific Ocean near the equator, is the fifth-largest non-Canadian destination for U.S. oil exports in 2016, averaging 14,000 bbld through May. With no refineries, the Marshall Islands are unlikely the final destination, but rather may be the location of ship-to-ship transfers for delivery to destinations in Asia, or a point at which a cargo of crude oil would await a buyer in Asia. U.S. customs and Border Protection documentation requires the final destination for an export, if known. Therefore, cargos that will undergo a ship-to-ship transfer, or that do not have a buyer prior to loading, will cite the jurisdiction of the transfer, not the cargo’s actual final destination.
The costs involved in exporting a cargo of crude oil can vary significantly. Transporting crude to a port, storage, loading, shipping, and other costs typically require large price spreads to make a transaction economic. Recent
exports are occurring during a period when the price of Brent crude oil—the benchmark for global seaborne crude—has held a narrow premium to West Texas Intermediate (WTI), the U.S. benchmark, limiting the positive economic options for exporting U.S. oil. Through early August 2016, WTI averaged about 31 cents/bbl less than Brent, despite a recent widening to $1.08/bbl for the week ending July 1.
Available shipping options can provide opportunities for crude exports despite a narrow price spread. For example, the recent cost of booking a tanker for a spot shipment of crude has been the lowest since 2009. Also, if either a buyer or a seller of exported crude oil has a tanker on time charter—meaning the vessel’s time has already been paid for, for a set period, thereby fixing its cost—the vessel may operate independently of tanker rates. Another shipping option is to book a back-haul voyage, the trip a tanker would normally make empty while returning to a port to load its next cargo. Back-haul voyages can be significantly discounted from regular tanker rates. Refineries in the ARA and in the rest of Western Europe actively trade with markets and refineries in the U.S., using both clean and dirty tankers. Clean tankers carry refined cargos and dirty tankers are loaded with less-refined or unrefined cargos. Trade flows between Europe and the U.S. Gulf Coast, which primarily use dirty tankers for transporting crude and less-refined products such as residual fueloil, provide opportunities for back-haul cargos of U.S. crude oil.
In addition, sellers of U.S. crude can use several methods to entice buyers despite unfavorable price spreads. A particular cargo or grade of crude oil can be discounted from a benchmark based on quality variations, such as API gravity, a measurement of the American Petroleum Institute that determines how heavy or light a petroleum liquid is compared to water, sulfur content, or other specifications. With the hope of continued purchases in the future, marketers of U.S. crude for export may offer buyers price discounts on sample or test cargos so that refiners may become more familiar with the crude and its compatibility with their refinery and desired product yield. This may explain some of the sporadic, typically small-volume crude oil export patterns to some countries in Asia, Europe, and elsewhere. However, notes EIA, sustained and significant increases in U.S. crude oil exports likely require more than lower shipping costs and sporadic purchases. They would require higher U.S. crude production and a significantly wider Brent-WTI price spread, neither of which are projected in the agency’s August Short-Term Energy Outlook.
In the first five months of 2016, U.S. crude exports averaged 501,000 bbld, 43,000 bbld, or 9%, more than the full-year 2015 average. Nonetheless, this rate of growth is significantly slower than before restrictions were lifted, when year-over-year growth from 2012 to 2013 was 100%, and then 162% from 2013 to 2014. However, after the lifting of restrictions in 2015, the number and variety of destinations for U.S. crude oil exports has changed. So far in 2016, crude oil was exported to 16 different nations, six more than 2015 and double the number of destinations in 2014.
Before the removal of export restrictions, most U.S. crude shipments were to Canada. In recent years, oil exports to destinations other than Canada were reexported volumes of foreign crude or an occasional cargo of Alaskan crude, which was exempt from export restrictions. In March 2016, total oil exports to countries other than Canada exceeded those to Canada for the first time since April 2000, 259,000 bbld versus 249,000 bbld. In May 2016, when total U.S. crude oil exports reached 662,000 bbld, exports to countries other than Canada exceeded exports to Canada by 46,000 bbld.
Aside from Canada, the largest and most consistent U.S. crude export destination for the first five months of 2016 has been Curacao, located in the Caribbean Sea north of Venezuela. Exports averaged 54,000 bbld through May. Petróleos de Venezuela (PDVSA), the state-owned oil company of Venezuela, operates the 330,000-bbld Isla refinery on Curacao, as well as crude and petroleum product storage facilities on the island. Trade press reports indicate that U.S. crude exports to Curacao are likely being used as diluent, blending a light U.S. crude with a heavy Venezuelan crude, for either processing at the Isla refinery or for re-export to PDVSA customers.
Exports to the Netherlands, the second-largest non-Canadian destination for U.S. crude oil, averaged 39,000 bbld through the first five months of this year. Two of the three cities that collectively make up the large refining and petroleum product trading hub of Amsterdam, Rotterdam, and Antwerp, known as ARA, are located in the Netherlands. Other Western European nations, including Italy, France, and the United Kingdom, also rank high on the list of U.S. crude oil export destinations.
The Marshall Islands, an island group in the Pacific Ocean near the equator, is the fifth-largest non-Canadian destination for U.S. oil exports in 2016, averaging 14,000 bbld through May. With no refineries, the Marshall Islands are unlikely the final destination, but rather may be the location of ship-to-ship transfers for delivery to destinations in Asia, or a point at which a cargo of crude oil would await a buyer in Asia. U.S. customs and Border Protection documentation requires the final destination for an export, if known. Therefore, cargos that will undergo a ship-to-ship transfer, or that do not have a buyer prior to loading, will cite the jurisdiction of the transfer, not the cargo’s actual final destination.
The costs involved in exporting a cargo of crude oil can vary significantly. Transporting crude to a port, storage, loading, shipping, and other costs typically require large price spreads to make a transaction economic. Recent
exports are occurring during a period when the price of Brent crude oil—the benchmark for global seaborne crude—has held a narrow premium to West Texas Intermediate (WTI), the U.S. benchmark, limiting the positive economic options for exporting U.S. oil. Through early August 2016, WTI averaged about 31 cents/bbl less than Brent, despite a recent widening to $1.08/bbl for the week ending July 1.
Available shipping options can provide opportunities for crude exports despite a narrow price spread. For example, the recent cost of booking a tanker for a spot shipment of crude has been the lowest since 2009. Also, if either a buyer or a seller of exported crude oil has a tanker on time charter—meaning the vessel’s time has already been paid for, for a set period, thereby fixing its cost—the vessel may operate independently of tanker rates. Another shipping option is to book a back-haul voyage, the trip a tanker would normally make empty while returning to a port to load its next cargo. Back-haul voyages can be significantly discounted from regular tanker rates. Refineries in the ARA and in the rest of Western Europe actively trade with markets and refineries in the U.S., using both clean and dirty tankers. Clean tankers carry refined cargos and dirty tankers are loaded with less-refined or unrefined cargos. Trade flows between Europe and the U.S. Gulf Coast, which primarily use dirty tankers for transporting crude and less-refined products such as residual fueloil, provide opportunities for back-haul cargos of U.S. crude oil.
In addition, sellers of U.S. crude can use several methods to entice buyers despite unfavorable price spreads. A particular cargo or grade of crude oil can be discounted from a benchmark based on quality variations, such as API gravity, a measurement of the American Petroleum Institute that determines how heavy or light a petroleum liquid is compared to water, sulfur content, or other specifications. With the hope of continued purchases in the future, marketers of U.S. crude for export may offer buyers price discounts on sample or test cargos so that refiners may become more familiar with the crude and its compatibility with their refinery and desired product yield. This may explain some of the sporadic, typically small-volume crude oil export patterns to some countries in Asia, Europe, and elsewhere. However, notes EIA, sustained and significant increases in U.S. crude oil exports likely require more than lower shipping costs and sporadic purchases. They would require higher U.S. crude production and a significantly wider Brent-WTI price spread, neither of which are projected in the agency’s August Short-Term Energy Outlook.
