US oil exports: WTI fob up on Saudi cutbacks

The price of WTI fob to the Gulf Coast rose this week in the wake of Saudi Arabia's extension of its 1mn b/d production cut as well as growing demand from Asia-Pacific for US light sweet crude.

The discount of WTI loading 15-45 days forward at the US Gulf Coast narrowed by 47¢/bl against September Ice Brent over the week to a $2.10/bl discount on 6 July. Waterborne WTI was assessed at a 47¢/bl premium to WTI Houston compared to 39¢/bl a week earlier.

Purchases of August loading US crude by Asia-Pacific refiners appear on pace to top July-loading purchases last month. Argus has counted 12 August-loading VLCCs of US crude heading to Asia Pacific so far. Taiwan refiner CPC is also expected to issue a tender before the end of the month. CPC typically purchases 2-3 VLCCs of US light sweet crude.

The VLCC rate from the US Gulf Coast to China remained unchanged at $3.97/bl over the week after declining by 71¢/bl last week.

WTI delivered to northeast Asia is trading at or below the price of light sour Murban, which is usually at a discount to WTI, encouraging participants to purchase US light sweet crude rather than Murban.

The gains in the price of waterborne WTI also coincided with the Saudi announcement that the country will extend its 1mn b/d crude production cut from June to July and August.

The extension by Saudi Arabia is meant "to reinforce the precautionary efforts made by Opec+ countries with the aim of supporting the stability and balance of oil markets", according to state news agency Spa, citing an energy ministry source.

Saudi Arabia's cut will reduce the country's output for July and August to just under 9mn b/d.

Fellow Opec+ member Russia said it plans to curb its oil exports by 500,000 b/d in August but did not say from what baseline.

Total Russian crude exports stood at around 5mn b/d in May, according to Argus estimates. Russia had already pledged to reduce its crude output by 500,000 b/d from March.

In addition to the production cut Saudi Aramco raised its official August formula prices for all regions. For its core Asia-Pacific customers prices for Arab Light, Arab Medium, and Arab Heavy grades are up by 20¢/bl, Arab Extra Light is unchanged and Arab Super Light is lowered by 40¢/bl. This could be a result of weak refining margins for light distillates.

All crude grades are expected to rise by 80¢/bl for northwestern European customers. The Mediterranean will see an increase of $1/bl for most crude grades apart from Arab Heavy rising to $1.10/bl.

On 5 July, Iran's crude production exceeded the 3mn b/d mark, according to the country's oil minister Javad Owji.

Iran's total output is 3.8mn b/d, consisting of 3.07mn b/d of crude with the remainder being condensate. Iran wants to increase crude production capacity in the coming years. One way to do so is to increase capacity at the South Azadegan oil field to 540,000 b/d from 190,000 b/d now and 165,000 b/d in May.

Separately, exports of crude from the US fell to 3.8mn b/d in May from 4mn b/d in April, but still rose by 10pc compared to 3.4mn b/d in May 2022, according to the latest available monthly statistics from the US Census Bureau.

The fall in exports in May was largely driven by a 71pc decline to 260,000 b/d in US shipments to China, but those declines were partly offset by an increase in volumes destined for Europe.

US exports to Europe rose by about 300,000 b/d to 1.8mn b/d.

By Ben Montgomery