Viewpoint: Tariffs, disruptions will boost LatAm crudes
Latin American crude grades will become more competitive to the US west coast and China as the collapse of Venezuelan exports, US-China trade tariffs, and US sanctions on Iran impact trade flows.
At the US Gulf coast, Latin American crude will face increased competition from heavy Canadian crude and medium sour domestic Mars. US Gulf coast refineries have already turned to heavy Canadian crude amid falling Venezuelan supplies, and could opt for more readily available Mars as the US administration escalates its trade dispute with China.
US Gulf coast imports of heavy Canadian crude rose by 38pc to 188,000 b/d in April from around 137,000 b/d in April 2017, according to US Energy Information Administration (EIA) data. Meanwhile, imports of heavy Venezuelan crude into the same region fell by 45pc to 561,000 b/d in April from around 812,000 b/d in the same period of 2017.
US-China trade tariffs will make Mars exports uncompetitive to China, and leave more available at the US Gulf coast. The market strongly reacted on 19 June, when the US administration escalated its trade dispute with China by ordering a 10pc tariff on an additional $200bn/year of imports from China. Mars' premium to WTI dropped over 200pc in the four days from a $3.65/bl premium to a $4.95/bl discount, but recovered to a $2.30/bl discount by July. That is still markedly lower from the $3.65/bl premium to WTI before the start of the trade dispute.
At the US west coast, Latin American crude accounts for roughly 30pc of total imports to the region, and the arbitrage for those grades has markedly improved. Alaskan North Slope (ANS) crude held an average premium of about $1.85/bl to the August-delivered price of Argentinian heavy sweet Escalante, up from an average 50¢/bl discount for July-delivered cargoes. ANS was assessed at an average premium of about $4.15/bl to Colombian medium sour Vasconia for August-delivered cargoes, rising from an average $2.20/bl premium for July-loading cargoes.
But more crude from the Mideast could pressure Latin American crude as the US plans to engage with partners like Saudi Arabia to ensure that global supply is not adversely affected by its sanctions on Iran. Saudi Arabia has traditionally accounted for roughly 30pc of total crude imports to the US west coast. The country's reduction of Official Selling Prices (OSPs) for US customers in August is a policy that will likely continue as it seeks to increase its barrels' competitiveness into the US market.
As an influx of Canadian heavy, Mars and Saudi crude pressure Latin American grades in the US, China will emerge as the next best alternative market, especially as that country could soon find itself short nearly 1.4mn b/d of crude.
China imports around 9.1mn b/d of crude currently, including 650,000 b/d from Iran, 340,000 b/d from Venezuela and 360,000 b/d from the US. Importers fear that Venezuelan production could decline by up to 500,000 b/d by the end of this year, Iranian exports may fall by as much as 1.5mn b/d and US imports will no longer be profitable.
These threats will likely affect crude flows, improving the arbitrage for Latin American crude to the US west coast, and more likely to China.
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Canadian rail workers vote to launch strike: Correction
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FTC clears Exxon-Pioneer deal but bars Sheffield
FTC clears Exxon-Pioneer deal but bars Sheffield
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Abu Dhabi’s Adnoc puts crude capacity at 4.85mn b/d
Abu Dhabi’s Adnoc puts crude capacity at 4.85mn b/d
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Shell's 1Q profit supported by LNG and refining
Shell's 1Q profit supported by LNG and refining
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