Geopolitics collided with renewed global demand concerns with the emergence of a new Covid-19 variant to culminate in late-month trade with a hefty Black Friday sale for global crude futures.
Welcome back to Argus’ monthly blog: The US Crude Export Chronicles, by associate editor Amanda Hilow (@HilowMidpoint). Come back every month for a recap on US crude exports and how they are faring in an uneven recovery from the earlier stages of the Covid-19 pandemic.
The theme again this month: Volatility, culminating in quite the Black Friday sale on crude.
Global crude prices fell by more than 10pc on 26 November, with US light sweet WTI falling below $70/bl for the first time since September, as the emergence of the new Omicron Covid-19 variant prompted renewed concerns over global demand.
As governments continue to investigate the implications of the new coronavirus variant, UK, Singapore and Brazil were among the first countries to re-introduce travel restrictions intended to stanch the spread of the virus. The US also joined a handful of other nations in imposing a ban on air travel from South Africa and seven nearby countries but does not currently plan to broaden restrictions.
The renewed travel restrictions closely follow the US administration’s announcement it would sell 18mn bl of sour crude from the US Strategic Petroleum Reserve (SPR) and loan out an additional 32mn bl in 2022, with early deliveries available as soon as December.
US crude exports fell by 13pc to 2.67mn b/d in September, according to the latest trade data published by the US Census Bureau. That’s roughly the same volume we were exporting before the 2019-2020 midstream build out from the Permian basin to the Texas Gulf coast.
So, what happened? Two words: Hurricane Ida.
The Category 4 storm landed at the US Gulf coast in late August, temporarily knocking out more than 96pc of offshore oil production. Shell was among the few offshore producers to report major damage at its facilities and ultimately declared a force majeure on multiple contracts for medium sour Mars crude after production was shut in at the West Delta-143 platform.
The Louisiana Offshore Oil Port (LOOP), which is currently the only US terminal capable of fully loading a very large crude carrier (VLCC), was also suspended until late September, adding pressure to US crude export capabilities.
For more discussion on September’s tumble and the immediate aftermath of Hurricane Ida, check out my latest podcast episode with Argus vice president of business development Jeff Kralowetz here.
In the pipeline
Much of the intra-month volatility in US crude prices resulted from consistent inventory drawdowns from the Cushing, Oklahoma, storage hub. Stock levels fell to a three-year low amid line fill operations on the Capline reversal project.
The pipeline, which used to carry up to 1.2mn b/d from Louisiana to Patoka, Illinois, is expected to be refilled with crude by the end of December, enabling it to begin commercial operations in its new southbound direction as soon as January.
The reversed Capline will carry an initial 100,000 b/d of western Canadian crude to Louisiana, which could potentially displace some Louisiana medium sours into the global export market.
Opec+ will meet next week to set its output policy for January. The coalition will need to contend with the latest Covid-19 variant restrictions as well as a coordinated release of SPR crude from both the US and a handful of the world’s major consuming countries.
Before the new variant was detected, several Opec+ delegates told Argus they saw no need for the group to deviate from its plan to gradually restore the production it removed from the market last year in monthly 400,000 b/d increments. But the deal does allow for the possibility of a three-month pause if market conditions warrant it.
Coming up, Argus experts are returning in-person to talk to you at the next Americas Crude Summit, planned for 24-25 January in Houston. You can register here. Until then, smooth sailing!