Demand disruption by fresh Covid-19 concerns — coupled with a simultaneous increase in global supplies — is pressuring US crude prices lower, while key importer India again knocked China to the number-two destination for US crude flows.
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 wavering Covid-19 recovery.
New Covid-19 lockdown measures in Europe rattled global crude markets as a swath of countries extended non-essential travel restrictions. The measures will likely truncate fuel demand and affect short-term economic performance. Ice Brent even entered into contango for a day as prompt prices were pulled drastically lower.
The lower demand, combined with a simultaneous increase in Libyan production, boosted floating storage volumes in the North Sea and led to an immediate 40¢/bl drop in delivered prices for US light sweet crude West Texas Intermediate (WTI) at the Rotterdam trade hub in the Netherlands.
China has meanwhile increased its appetite for discounted Iranian oil, diverting other crudes like Russian’s ESPO Blend or light sweets from west Africa. ESPO Blend is now competing with Alaskan North Slope (ANS) at the US west coast, while the surplus west African cargoes could as a result edge out US crude deliveries to India.
The fob price of WTI at the US Gulf coast hit a six-month low on 23 March at a $2.40/bl discount to the international crude benchmark Ice Brent as regional values drew added supply pressures in the domestic market.
US crude production increased 1mn b/d to 11mn b/d in the first three weeks of the month, though February’s freeze hampered refinery operations that remain slow to return. US Gulf coast crude stocks rose by 25.8mn bl in that time frame to 293.6mn bl as coastal refinery utilization still lingered below 80pc by the week ended 19 March, according to estimates by the US Energy Information Administration (EIA).
The drag on refinery output has us asking: is it too soon to call it a bottleneck?
US crude exports may be showing signs of cracking, after staying fairly resilient through 2020.
Total domestic crude exports fell by about 8pc in January, but stayed above 3mn b/d, according to the most recent Census trade data.
Meanwhile, weekly EIA estimates show a further drop to about 2.8mn b/d in February and 2.5mn b/d so far in March. We can blame some of the decline on severe winter weather and power outages in Texas and other states in mid-February which curtailed production and shut ports. And keep in mind that the weekly EIA estimates do not always line up with the more definitive monthly trade info. As such, all eyes will be on the next Census data drop on 7 April.
India was the top buyer of US crude in January with 463,000 b/d, knocking China off the number one spot. The future of the US-China relationship is unclear as the first trade meeting between the two countries under the new administration under President Joe Biden was rather frosty.
The Chinese delegation went to the 18-19 March meeting in Anchorage, Alaska, hoping to persuade the US to lift punitive tariffs on imports from China, which Beijing has reciprocated. But the US merely promised to review the issue.
In the pipeline
Lots of interesting developments in Corpus Christi infrastructure this month, starting with an unusual incident at Moda’s export terminal at Ingleside. A vessel, not associated with Moda or its terminal, lost power and clipped a structure at the end of one of the piers on 15 March. Moda has been tight-lipped about the impact on operations. In a joint statement this week with the Port of Corpus Christi, Moda said its engineering and operations personnel “are proactively working with marine engineering experts and construction contractors to restore full capability as quickly as possible.”
Also in Corpus Christi, a big project got some bad news. The Port of Corpus Christi Authority terminated a 50-year lease with Lone Star Ports for an onshore crude export terminal. The lease was for 200 acres on Harbor Island at Aransas Pass, Texas, which is in the Corpus Christi Ship Channel basin, to build a marine terminal for loading and unloading of crude and petroleum products, an oil storage facility and two docks.
The Port did not give a reason for pulling the lease, but the Harbor Island project was facing opposition from environmentalists and some local residents. Just to be clear, the Port of Corpus Christi is still leasing some space on Harbor Island to support a VLCC project dubbed Bluewater – the Phillips 66-Trafigura plan to build an offshore port that could load 16 VLCCs a month.
And keeping with the theme of crude tanker chaos, a container ship became wedged within the walls of the high-traffic Suez Canal early 24 March resulting in a significant backlog of hundreds of vessels waiting to traverse the waterway. The ship was refloated on 29 March, but the backlog of ships could delay Mideast Gulf shipments to the US as well as US cargoes transiting the shortest course to India.
We’ll be watching how the market reacts to the fresh Covid-19 lockdown measures in Europe and other regions. In the meantime, we wish you smooth sailing in these choppy waters.