The US Crude Export Chronicles: March 2020

Author Amanda Hilow, Associate Editor and Eunice Bridges, Senior Reporter

The future of US crude exports is at risk as the coronavirus pandemic caps oil demand globally, while prices collapse amid the looming flood of Opec+ crude supplies in April.

Welcome to our monthly blog: The US Crude Export Chronicles by Argus senior reporters Amanda Hilow (@HilowMidpoint) and Eunice Bridges (@eunicebridges12). Come back every month for Argus’ take on US crude exports and how they are transforming global markets.

Hot topics

Oil markets today look like one, gigantic typo. The coronavirus crisis has morphed into a global pandemic, slashing travel demand, leading to overflowing fuel inventories and refinery curtailments across the globe. Compounding the problem is Saudi Arabia and other key Opec+ members planning to increase production levels beyond sustainable capacity after failing to reach an agreement earlier this month to extend the current curtailment agreement into the second quarter.

Global crude benchmarks have plummeted to 18-year lows, with WTI settling as low as $20.37/bl by 18 March while Ice Brent hit $24.88/bl. WTI fob Houston hit a record-low discount to Ice Brent of $8/bl in order to compete with substantially lower Saudi Arabian prices while overseas arbitrage opportunities dried up.

Crude futures settlements YTD

The oil price crash is staunching US exports, while limited jet fuel and gasoline demand is compelling refiners to cut throughputs and extend maintenance turnarounds. US regulators have meanwhile turned an eye toward domestic production levels, with the Texas Railroad Commission floating the idea of limiting state output for the first time since 1973.

Companies are actively slashing their capital expenditure (capex) plans to ride out this low-price environment, and several expansion plans have been delayed.

In the pipeline

The midstream sector is feeling the pain from the plunge in crude prices and the coronavirus-related demand loss.

Phillips 66 was the first to hit the pause button on two major crude pipeline projects and we expect other companies to follow. The refiner is deferring the Red Oak pipeline and the Liberty pipeline projects and will make a decision on whether to continue them at a later date. Both were previously scheduled to start service in early 2021.

The Red Oak system would transport crude from the Permian basin and Cushing, Oklahoma, to Texas ports, including Corpus Christi, Ingleside, Houston and Beaumont. Liberty would move 350,000 b/d of Rockies and Bakken production to Corpus Christi.

This delay should throw a monkey wrench into Continental’s plan to export Bakken crude at Corpus Christi, as it was planning to use the Liberty line to get to the coast.

Enterprise Products Partners, a major player in crude exports, is also reviewing its capex plans in the wake of the oil price crash. Enterprise has two large pipeline projects on the horizon – both moving Permian crude to Houston. We’ll see if they survive the market downturn.

Census surprise

January seems so long ago now. The impact of the coronavirus was just emerging in global markets that month. US crude exports that month fell from a record high, but stayed above 3mn b/d, according to the latest Census trade data.

South Korea held on tight to the second spot of top importers of US crude in January, taking a robust 552,000 b/d, even as the coronavirus was starting to impact that country.

China imported zero US crude in January, but exports to China were expected to start ramping up this year after Beijing and Washington signed an interim trade deal that included commitments to purchase US energy products. But, much like everything else in the energy markets, the plan has been upended by the coronavirus outbreak which caused many refiners in Shandong province to slash run rates because of travel restrictions.

Fuel demand is now starting to recover in China, but throughput levels are still threatened by sharply lower export margins. Read the latest here.

What’s next

US crude exports could be in for a nosedive come April as traders struggled to place cargoes in a saturated global market until the final week of the trade month. But a deepening contango structure in crude forward curves has made for favorable storage economics, and we’re beginning to see early indications of floating storage strategies.

That could pressure waterborne crude values lower as it takes tonnage out of the freight market, which could lift transportation costs higher. But the crude price fall will be cushioned going forward as key demand hubs like China begin to recover from coronavirus curtailments.

Stay up to date on Argus’ assessment of the fallout from the virus on multiple commodities markets by visiting our latest microsite, where you can access the latest blog posts, podcasts and webinars about the pandemic’s impact.

We hope to see you again for next month’s analysis on US crude export flows and dynamics. Until then, smooth sailing.

Senior Reporters Amanda Hilow and Eunice Bridges

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