Delayed lightering pressures US Gulf coast spot prices

A stalled cold front bringing strong winds and high waves to the western Gulf of Mexico has effectively delayed reverse lightering operations until 21 November, adding to strained ship-to-ship transfer capacity and pressuring both freight and waterborne spot crude prices to levels not seen in more than two years.

Choppy waters made 14 November the only workable day this week for lightering. The National Oceanic and Atmospheric Administration forecasts the stationary front will continue to bring strong to gale force winds to the northwest and west-central Gulf of Mexico this weekend, spreading to the central and southwest Gulf as the weekend progresses.

Reverse lightering operations, typically performed via an Aframax or Suezmax to complete loadings of very large crude carriers (VLCCs) along the Texas coast, are in high demand with nearly 50 VLCCs close to or heading to the US Gulf coast to load within the next 30 days. A delay to reverse lighterings this week creates a backlog at a time when demand is already high, raising the rate for a single US Gulf coast Aframax three-day reverse lightering to $740,000 on 16 November.

Lightering companies do not have enough tonnage to cover all the jobs, forcing traders to use their own tonnage, a shipbroker said.

The delays are significantly dampening the regional waterborne spot crude market, especially at a time when unseasonably high Aframax rates have compelled many traders to opt for larger vessel sizes to save on freight costs.

WTI fob Houston had already fallen by more than $1.60/bl against February Ice Brent week-on-week to a $4.55/bl discount by Wednesday and is poised to fall by another $2/bl or more today on expected delays for larger cargo sizes that could create a backlog of tankers waiting to load as far out as early December.

A cargo loading 15-20 December out of the Corpus Christi, Texas, area was offered today at parity to the Argus WTI Houston pipeline index, or 50¢/bl lower against the secondary coastal crude benchmark compared to similar cargoes offered on Wednesday. With the pipeline price of WTI also drawing pressure from maintenance on the Zydeco pipeline, that cargo offer was estimated at a roughly $6.60/bl discount to February Ice Brent, yet no buyers have stepped forward to purchase at that pricing point just yet.

WTI fob Houston has not been assessed at a discount to Ice Brent as low as $6.60/bl since late April 2020, when the Nymex light sweet crude futures contract had plummeted below $0/bl for the first time in history as demand waned faster than production could respond in the earlier stages of the Covid-19 pandemic.

By Tray Swanson and Amanda Hilow