Spot crude prices + loading prices do not add up to waterborne prices, no matter how much sense it may make on paper.
There is one misperception that pervades global markets: Adding loading costs to the current domestic spot price for crude reflects the value of that crude on the water.
In reality, it is quite the opposite. While pipeline prices and loading costs are helpful indicators, they are driven by fundamentals not necessarily tied to global waterborne dynamics. For example, Houston-area loading costs can vary from 25¢/bl to $1/bl, while WTI fob Houston — launched as an Argus assessment on 4 October — has fluctuated between parity and a $1.20/bl premium to Argus WTI Houston priced in the US Gulf coast physical pipeline market.
The waterborne premium to WTI Houston fell to near parity in late July as major Chinese refiners backed out of their US crude cargoes and sold at a loss ahead of potential tariffs on US oil imports that would have cost them as much as an additional $20/bl. But now that demand has increased for US crude at alternative destinations, including Taiwan and South Korea, ahead of US sanctions on Iranian crude, waterborne values have recovered to a roughly 40¢/bl premium to the domestic price.
This truth becomes even more apparent in the fob Bakken price, which has ranged between a 9¢/bl discount and a $1.17/bl premium compared to the grade’s physical pipeline value assessed by Argus at the Beaumont and Nederland terminals in Texas since the waterborne assessment for the grade went live on 1 October.
The variation here results partially from fluctuating global demand for alternative WTI barrels as well as volatility in supply at the US Gulf coast, since some months have refiners in the upper US Midcontinent purchasing Bakken in Patoka, Illinois, before it can be shipped to Texas on the Energy Transfer Crude Oil pipeline (ETCOP).
If crude oil remains exempt from US-China tariffs, large buyers would likely re-enter the US waterborne market if the price is right. Expectations of Iranian sanctions have help boost the US Nymex light sweet crude futures contract relative to international benchmark Ice Brent, but the market always tends to rebalance. If — and when — it does, spot waterborne values could surge relative to the counterparts in the US pipeline market to levels well above loading costs.
We detailed the launch of the WTI fob assessment in full in the recent webinar: “Pricing WTI on the water: A Houston fob market emerges.” Argus will revisit the key dynamics of US crude flows to global markets in our next webinar — “Bakken fob: Evolution of the US waterborne crude market” — scheduled for 30 October, also diving into the weeds on US infrastructure and pipeline connectivity allowing these exports to happen.