US crude exports are facing serious headwinds this summer including a tight Brent-WTI spread and a looming boost in supply from the Opec+ group of nations. And monthly data has been showing unusual volatility.
Welcome back to our monthly blog: The US Crude Export Chronicles, by Associate Editor Amanda Hilow (@HilowMidpoint) and Senior Reporter Eunice Bridges (@eunicebridges12). Come back every month for Argus’ take on US crude exports and how they are faring in the uneven Covid-19 recovery.
All eyes were on Opec+ negotiations this month when some unexpected drama reverberated in global crude markets, well into August trade. A weeks-long impasse in discussions to boost production beyond this month resulted in uneconomic export arbitrage dynamics during the first half of the month, as the spread between US benchmark WTI and the international marker Ice Brent narrowed to inside $1/bl.
Global benchmark prices rose amid uncertainty surrounding near-term production, until a consensus was finally reached between Saudi Arabia and the UAE over the details of the policy. The Opec+ agreement to raise its collective production quota by 400,000 b/d per month from August, and by 432,000 b/d from May 2022, immediately pulled down prices. The Opec+ news on 18 July tanked the WTI futures market, which fell by more than 7pc in one session, but the contract recovered the losses within a week.
The AGS Marker, which reflects Midland-quality WTI at the US Gulf coast, fell by 7.5pc on 20 July — the first business day after the weekend decision made by Opec+. The prompt Nymex discount to month-two Ice Brent has since widened back out to $1.48/bl as of 28 July, allowing for more export opportunities, as both benchmarks continue to recover after the initial price impact.
The see-saw of US crude export monthly data continued with exports once again falling below 3mn b/d in May. Total domestic crude exports averaged 2.71mn b/d that month, down from 3.24mn b/d in April, according to the most recent Census trade data.
India was the top destination, followed closely by China. Although China took the number two spot with 350,000 b/d, that number is still down sharply from last year, when exports to that country averaged 690,000 b/d from May-December.
More recently, a drop in estimated Asia-bound US crude exports in July has pulled very large crude carrier (VLCC) rates to three-year lows on that route. On a side note, the Census trade data has differed slightly from monthly Energy Information Administration (EIA) data in recent months because the EIA includes crude exports to the US Virgin Islands.
In the pipeline
In the latest on VLCC offshore ports, Enterprise is expecting a final federal permit for its Sea Port Oil Terminal (SPOT) of the coast of Freeport, Texas, by the end of the year.
The US Maritime Administration has told the company to expect a permit in the fourth quarter, Enterprise co-chief executive Jim Teague said while discussing earnings. Teague also said an Army Corps of Engineers environmental review of the project is ready.
In other midstream news, Plains All American Pipeline quietly pulled the plug on a small pipeline with big implications. The company said it "is no longer pursuing" its joint venture Byhalia Connection crude pipeline, according to a filing to the US Securities and Exchange Commission.
The planned line was just 45 miles long from Memphis, Tennessee, to Marshall County, Mississippi. But it would have been a critical connector of two much larger long-haul pipelines – the Diamond line from Cushing, Oklahoma, and a reversed Capline which will move south to St James. In other words, Byhalia would have allowed a lot more Cushing crude to reach the Gulf coast.
Plains blamed a Covid-19-related drop in US oil production as the reason for the cancellation of Byhalia. The project was facing strong local opposition.
We are anxiously awaiting the next Census data dump in early August. This will include official June export trade data, which gives us a half-year worth of numbers to crunch. Port-specific data will be particularly interesting as the Port of Corpus Christi recently announced that its crude exports increased in the first half of 2021. This would buck the lower trend everywhere else.But market expectations are that June and July statistics will both reflect volumes under 3mn b/d, as the tighter arbitrage economics contracts export opportunities.
Some demand for North American crude remains in Asia-Pacific, with at least 2mn bl of WTI recently heard sold on a spot basis to an Indian refiner for delivery in October, and more interest emerging via tenders.
Yet overall US crude flows to the region are trending lower, with loadings for Asia-Pacific destinations during the first half of July estimated around 50pc lower compared to the first half of the year. Almost 730,000 b/d of US crude is expected to be loaded for Asia in July, down from 1.3mn b/d for the first half of 2021, according to Vortexa.
Please come back again next month for our early takes on how Opec+ production is affecting markets. Until then, we wish you smooth sailing in these choppy waters.