The US sour crude benchmark used as a pricing basis for Mideast Gulf imports has been buoyed by higher exports, strategic crude reserve buying and Opec+ production cuts, a trend likely to extend into next year.
The Argus Sour Crude Index (ASCI) has risen to a premium of 32¢/bl to Nymex-quality Domestic Sweet (DSW) at Cushing for January delivery. This is up from a 26¢/bl discount for December trade and an average discount of $1.22/bl for 2023 deliveries.
ASCI is a volume-weighted average of US Gulf deepwater sour crude deals — comprising Louisiana-delivered Mars and Poseidon and Texas-delivered Southern Green Canyon (SGC) — and is included in official selling price formulas for crude from Saudi Arabia, Iraq and Kuwait.
A rise in US sour crude exports has supported ASCI, as refiners seek alternatives in the face of 4.7mn b/d of Opec+ production cuts since October 2022. US medium sour crude exports neared 330,000 b/d in January-November, up by 42pc on the year, data from analytics firm Vortexa show.
China almost doubled its imports of US medium sour crude this yearto about 145,000 b/d amid Opec+ production cuts and the May startup of PetroChina's 400,000 b/d Jieyang refinery. An additional 500,000 b/d of Opec+ reductions in the first quarter of 2024 are expected to continue to support Chinese demand for US sour grades in the new year.
Continued Russian crude sanctions are also supporting US Gulf sours as European refiners need alternatives. Germany has increased its US arrivals from under 10,000 b/d to more than 40,000 b/d since sanctions removed Russian Urals as an option. Poland imported Mars for the first time in August. Italy and France also stepped up their imports of US medium sours.
US government buying to refill the Strategic Petroleum Reserve (SPR) following sales of 180mn bl in 2022 has bolstered domestic sour crude demand. The Biden administration will continue to seek crude purchases until at least May 2024 at prices below $79/bl. SPR stocks have risen by 5.6mn bl since July 2023, mostly sour crude delivered to Texas, with an additional 3.9mn bl scheduled for January arrival. The US on 19 December awarded contracts to purchase 2.1mn bl for February delivery, and the administration plans to seek another 3mn bl of sour crude for March.
US demand has also been buoyed by lower imports from the three Middle East countries using ASCI to price their crude. US imports from those countries fell to 654,000 b/d in the third quarter from 705,000 b/d in the same period last year, as state-owned oil firms hiked their official formula prices. Saudi official crude prices to the US rose to all-time highs against ASCI for November and December delivery.
Rising production
These factors have helped offset pressure from rising US Gulf coast production, which hit 2mn b/d in September, the highest since November 2019, EIA figures show. Output of Mars, Poseidon and SGC increased to an estimated 1.17mn b/d in the third quarter, up by nearly 190,000 b/d from a year earlier.
SGC output climbed by nearly 110,000 b/d over the period. BP's 140,000 b/d Argos platform for Mad Dog 2 is producing 90,000 b/d into the SGC stream following an April start. Pipeline operator Genesis expects to see volumes continue to grow next year.
Murphy's 85,000 b/d King's Quay project has fed SGC and Poseidon since starting in early 2022. Woodside's Shenzi North subsea tieback to the original Shenzi platform also added production of SGC and Poseidon when it came online in September, boosting output by 14,000 b/d to 114,000 b/d.
Poseidon flows increased by about 28,000 b/d on the year in the third quarter. The Mars pipeline system shipped 555,000 b/d to the Louisiana coast in the third quarter, up by just over 50,000 b/d from the same period in 2022.
Mars volumes were boosted by Shell's Vito platform, which started in February with a 100,000 b/d capacity of oil equivalent. Next year, Chevron will start its 75,000 b/d Anchor project.
Looking further ahead, pipeline operator Genesis is expanding capacity on its SGC-carrying Cameron Highway Oil Pipeline System (CHOPS). The SYNC lateral pipeline to CHOPS is being built to take Beacon Offshore Energy's 100,000 b/d capacity Shenandoah project, with production expected late in 2024 or into 2025, according to a Genesis presentation this month.
Additionally, Genesis expects LLOG-operated Salamanca to start in early to mid-2025 with 60,000 b/d of capacity with access to Poseidon and SGC.
In the US pipeline spot market, Mars remains the main component of the ASCI benchmark price, comprising 64pc of trade reported for July-December, down from 70pc a year earlier.
