Viewpoint: US crude export outlook bleak amid surplus

A looming surplus of crude in 2022 may displace some US volumes from the waterborne market as domestic producers struggle to place cargoes in an over-saturated market, although exports may rise in the first quarter as governments release strategic oil reserves.

The US exported 2.91mn b/d of crude from January through October this year, according to the latest available monthly data from the US Energy Information Administration (EIA). That reflects a 9.6pc decrease from the same period of 2020, when global crude markets were still reeling from the earlier stages of the Covid-19 pandemic, but only 2pc lower than the 2019 baseline.

Domestic production through 10 December averaged roughly 11.06mn b/d in 2021, according to preliminary EIA data. That reflects a 4pc decrease compared to 11.5mn b/d for the full year 2020and down more than 10pc compared to a 2019 baseline of 12.31mn b/d.

In 2022, Americas crude production is poised to rise by 1.8mn b/d and, combined with Opec+ production hikes, global supply should rise by 6.4mn b/d, Paris-based energy watchdog IEA said in its latest Oil Market Report (OMR).

Oil consumption is expected to trail the increase in supply, rising by 3.3mn b/d next year to 99.5mn b/d, according to the OMR. That puts consumption at around 2.5mn b/d less than forecast global supply in the second quarter of 2022.

Additionally, the US and five other net oil consumers are expected to release up to 66mn bl of extra crude into the market from strategic petroleum reserves (SPR) — a coordinated government effort beginning in late November to offset soaring energy prices that recently hit a seven-year high.

If a 66mn bl SPR release takes place in the first two months of 2022, the global crude surplus could rise to 3.7mn b/d as soon as February, according to the Economic Commission Board, Opec's economic and technical think tank. A likelier scenario would be a more measured release over the next several months, according to the latest from the White House.

The majority of that volume would come from the US SPR, suggesting there could be a brief uptick in regional crude exports during the first quarter. US refineries are already operating at near 90pc of capacity, reflecting roughly 15.7mn b/d in throughputs, according to the EIA. That means there is little room to increase intake, which will push surplus Louisiana sour crude production into the global waterborne market.

But the increase in US crude exports may be short lived as sellers find trouble placing cargoes in a competitive and over-saturated global market.

US medium sour Mars crude, which most often competes in Asia-Pacific when exported, averaged an estimated 75¢/bl discount to Asian bellwether Oman crude on a delivered-China basis during the first half of the January 2022 trade month. But Mars touched a three-month high premium to Oman of roughly $1.35/bl on 15 December on recent strength in the domestic market.

US spot crude differentials to global benchmarks would likely need to ease to more competitive levels for the arbitrage economics to remain workable after an SPR release. Prices could stabilize once that initial surplus is cleared, but growing Opec+ production could displace US crude further from the Asia-Pacific market, in particular.

By Amanda Hilow