US crude exports are shifting toward alternative storage and refining destinations as Asian government-regulated travel restrictions cut into jet fuel demand and Chinese and South Korean crude imports.
More than 800,000 b/d of crude departed the US in February for Singapore, Malaysia and Indonesia, according to preliminary data from analytics firm Vortexa. That's nearly five times the roughly 165,000 b/d of US crude exported to those destinations in the fourth quarter of 2019, according to the US Census Bureau.
The three countries are known storage hubs, indicating they could be a temporary destination for US crude exports in case of a near- to mid-term recovery of Asia-Pacific demand from the economic blow caused by the coronavirus outbreak in northeast Asia.
Exports to China were expected to start ramping up this year after Beijing and Washington signed an interim trade deal in January to boost purchases of US energy products after the US-China tariff dispute of last year. China even indicated it would waive some of those costs to meet its ambitious target.
But the first US crude shipment to China this year is not expected to load until April as many refiners in Shandong province slash run rates as ongoing travel restrictions — intended to contain the spread of the coronavirus — reduce jet fuel demand, contributing to overflowing inventories.
Although there are early indications of demand recovery in China, the virus is now having a similar impact in the second-top importer of US crude, South Korea.
Around 550,000 b/d of US crude was shipped to South Korea in February, according to Vortexa, still 30pc higher than the fourth-quarter 2019 average as the country stepped in to purchase bargain-priced cargoes. But that volume is poised to fall in March as air travel to and from South Korea continues to spiral downward because of the country's escalating coronavirus crisis.
Just three tankers carrying approximately 5mn bl, or roughly 160,000 b/d, have been placed on subjects so far for a March departure from the US to South Korea, according to shipping fixture reports compiled by Argus.
At least six tankers carrying a total 11mn bl, or about 355,000 b/d, are already scheduled for Singapore from the US. Five more tankers loading at the US Gulf coast in March have cited Asia-Pacific as a destination without specifying a specific country, while another three VLCCs have been placed on subjects "for orders" — indicating the sellers of those cargoes have not determined its route yet.
US crude exports have also increased to Europe as ongoing militia-led force majeures in Libya took nearly 1mn b/d of production offline in mid-January, increasing the regional refiners' appetite for economic alternatives like WTI.
Shipments to the UK and the Netherlands nearly doubled in February compared to their fourth-quarter average, with the US exporting a combined 1.3mn b/d to the two countries last month, Vortexa data shows. But high-ranking officials at Libyan state-owned NOC expect a restart to that output soon, which is likely to displace the incremental volume that was coming from the US.
Economic contagion from the coronavirus so far has been limited largely to China, South Korea and Japan, even though widespread travel restrictions have cut into jet fuel demand globally. The US administration is planning to expand the scope of air travel restrictions with all European countries, after advising against travel to northern Italy.
More US crude is expected to travel to closer destinations that have not seen major hits by the virus. The US shipped more than 100,000 b/d of crude to Brazil in February, or more than 55pc higher than the fourth-quarter average as discounts widened for light sweet waterborne crude at the US Gulf coast amid dampened global demand.
And about 70,000 b/d of crude was exported to the Bahamas in February compared to none in the fourth quarter. US sellers are likely seeking to store crude at Buckeye's 26.2mn bl Borco crude and products storage terminal in Freeport on the Grand Bahama Island.
The Nymex WTI futures contract is in contango through 2027, indicating producers and traders can store crude near- to mid-term and sell at a higher price later down the curve.
In the case of a long-term impact on global oil demand because of the coronavirus, the volume of US crude exports could decline as market participants seek onshore storage destinations. WTI fob Houston has already fallen to a discount to onshore WTI at the Magellan east Houston terminal, indicating sellers would have to pay for loading costs themselves to place cargoes. This will discourage some participants from exporting, and more light sweet barrels are expected to be absorbed by the Houston market hub instead.
