By Alison Sider and Lynn Cook
U.S. oil is trading at the biggest discount to the global price
in two years, helping extend a boom in exports of crude from
American shale fields to refiners in Europe and Asia.
After Hurricane Harvey hammered the Gulf Coast last month, the
price of Nymex crude sank to as much as $6.30 a barrel below its
European counterpart, Brent--the widest gap since August 2015.
Harvey has passed, but analysts say the storm will reshape
global crude flows for months. The difference between U.S. and
international crude benchmarks, currently $5.88, is key in
determining when it's profitable to ship oil from U.S. ports to
places overseas.
A difference of at least $4 makes it attractive for a refiner in
countries like China or South Korea to buy oil from shale producers
in Texas and North Dakota, said R.T. Dukes, an oil expert with
consulting firm Wood Mackenzie.
"Get to a $4 spread and you can take it anywhere in the world,"
he said.
Take Occidental Petroleum Corp., a major U.S. exporter and large
producer in the Permian Basin of West Texas. Occidental is shipping
more crude than ever as lower U.S. prices boost demand for oil from
the Permian. The company recently struck new deals with customers
in South Korea, India, China and countries in Southeast Asia, said
Cynthia Walker, an Occidental senior vice president.
While the recent discount on West Texas Intermediate (WTI)
crude, the U.S. reference price, is poised to increase American
shipments, the U.S. had already become a disruptive force in global
energy markets, sending oil overseas after a ban on most exports
was lifted at the end of 2015. In recent years, the rise of the
highly productive and nimble U.S. shale industry has pushed oil
prices down world-wide. Exports have become a relief valve for U.S.
drillers, who have continued to pump despite relatively low
prices.
Because many big Gulf Coast refiners are largely geared to
process heavy crude, like the output from Canada and South America,
they have continued to import barrels, while some of the output
from shale formations has started to flow abroad to refiners set up
to process the light, sweet variety.
"The export window is wide open," said Michael Wittner, global
head of oil research at Société Générale.
Leasing oil tankers can cost anywhere from under $1 a barrel to
a few dollars, depending on the length of the trip. For instance,
taking oil from Texas to Asia is more expensive since it's a longer
voyage than to Argentina or the Netherlands. After tanker owners
expanded their fleets in recent years, shipping rates have fallen
dramatically. They're down 20% to 30% in the past year, depending
on where ships are loaded, according to shipping consultancy
McQuilling Services LLC.
For now, the WTI-Brent spread is wide enough to offset the
expense of loading supertankers that are too heavy for relatively
shallow Texas ports, analysts at consultancy JBC Energy said. While
the massive tankers generally have to wait offshore to be loaded by
smaller vessels, they are capable of larger volumes, making longer
journeys more economical. Analysts at McQuilling Services expect at
least 10 of these tankers to be loaded from the U.S. next month--a
record.
One big obstacle to more exports could soon be resolved. The
Louisiana Offshore Oil Port, LOOP, is the one place in the U.S.
that is deep enough for supertankers that can most profitably make
the journey to Asia. LOOP is looking to add the capability to load
those tankers next year.
U.S. and global oil prices had already drifted apart in August,
and during Harvey's peak, WTI tumbled. More than a quarter of total
U.S. refining capacity was offline as plants curtailed operations,
causing demand for U.S. crude to dwindle. Some refineries are still
struggling to return.
At the same time, global oil prices were on an upswing after
more than eight months of production cuts by the Organization of
the Petroleum Exporting Countries and strong summer demand.
Planned maintenance over the summer also limited output from one
of the key oil fields in the North Sea that determines the price of
Brent. European refiners cranked up output to pick up the slack for
shuttered U.S. plants.
Harvey all but stopped the flow of oil to and from the U.S., but
crude exports jumped back up by 775,000 barrels a day to 928,000
barrels a day in the first two weeks of September, as ports along
the Gulf reopened following the storm.
Analysts expect crude exports to hit records in the coming
months. Volumes are likely to surge to 1.3 million barrels a day in
the last three months of the year--more than double amounts from
the same time last year, analysts at Energy Aspects say.
Analysts at Macquarie anticipate that the U.S. crude discount
will shrink to $3 a barrel in the next two to three weeks.
Strong foreign appetite for U.S. crude will push up against the
limits of export infrastructure, said Stephen Wolfe, senior analyst
at Trafigura Group. The current gross export capacity stands at
about 2.2 million barrels a day, but in practice it's more like 1.8
million barrels a day after accounting for factors such as fog and
the logistics of loading massive tankers.
"We're going to really test that number over the next few weeks,
because we have excess barrels we need to move out," Mr. Wolfe
said.
Stephanie Yang contributed to this article.
Write to Alison Sider at alison.sider@wsj.com and Lynn Cook at
lynn.cook@wsj.com
(END) Dow Jones Newswires
September 21, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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