US Gulf coast emerges as swing crude exporter
London, 16 October (Argus) — US Gulf coast pricing is becoming increasingly relevant to global crude trade, as the region emerges as a major swing exporter of marginal supply.
Rising US crude output, the end to US export restrictions and expanded regional transport infrastructure have redirected crude flows to the Gulf coast and helped it become an important exporting market.
More than 1.25mn b/d of crude was exported from US ports in September, with shipments rising to 2mn b/d towards the end of the month, preliminary US data show (see graph). Hurricane Harvey, which disrupted nearly a quarter of US refining capacity at its peak, left a backlog of unsold supply and boosted exports. The September surge helped drive January-September exports to 940,000 b/d, more than 50pc up on a year earlier.
US crude is increasingly moving further afield. Close to 35pc of exports were shipped to Asia-Pacific refiners in January-August, up from just 6pc a year earlier. Chinese buyers have contributed in large part to the increase, taking 170,000 b/d of US crude this year, up from around 10,000 b/d a year earlier. Japanese and South Korean refiners are buying more, while Indian refiners have begun to issue tenders that specify exclusively US supply. More than a fifth of exports were shipped to Europe.
Deliveries have been helped by Opec and non-Opec production cuts that have taken 1.6mn b/d of supply out of the market, tightening mostly medium and heavy sour crude supplies. The shortfall has bolstered demand for US Gulf coast Mars and other similar medium sour crudes.
Mars prices in the Louisiana coast market and WTI prices in Houston — which represent Permian basin crude delivered by pipeline to the hub — are increasingly linked to global fundamentals. Both have risen against WTI Cushing since Hurricane Harvey made landfall. High exports from the region, which offset slower Gulf coast demand because of refinery disruptions in the aftermath of the storm, underpinned the firmer values.
New infrastructure has started up to support shipments following the end to crude export restrictions in December 2015. Shipments were already being redirected to the Gulf coast, home to nearly 50pc of US refining capacity, away from the WTI hub at Cushing, Oklahoma. Enterprise and Enbridge completed the reversal of the Seaway pipeline in 2012, which, alongside TransCanada's Marketlink system, has become a key conduit carrying crude from Cushing to the Texas coast.
The opening in October last year of Occidental Petroleum's 300,000 b/d export dock at Ingleside, near Corpus Christi, has helped bolster Gulf coast exports. Occidental can ship crude from the Permian basin along the 250,000 b/d Cactus pipeline and through the 660,000 b/d Eagle Ford pipeline system to the Corpus Christi terminal, which can handle Suezmax tankers. Midstream operators plan to expand export capacity further to meet expected higher output from the US and its shale regions.
Shale oil output growth is helping to drive a recovery in US output this year. Permian crude production rose to a record high of 2.58mn b/d in September, an increase of 550,000 b/d on the year, the EIA says in its Drilling Productivity Report (see graph). Output is forecast to rise to 2.63mn b/d in October.
US crude production rose to a more than two-year high of 9.5mn b/d in August, preliminary US EIA data show, and remained close to that level at 9.47mn b/d in September, up by 920,000 b/d on the year. Output is expected to climb to a record 9.92mn b/d next year.
US crude production
US crude exports