After Ban, More Destinations for U.S. Oil

EIA

By MarEx 2016-08-10 20:40:29

The U.S. Energy Information Agency said Wednesday that since Congress lifted the ban on most crude exports last December, the variety of oil cargo destinations has increased even more than the volume.

In the past, crude oil exports were permitted only under limited circumstances; Canada was the only importer of domestically produced oil from the lower 48 states, though oil from Alaska and transshipments of foreign oil were sold to other nations in small quantities. Beginning this spring, after the lifting of the ban, exports to overseas nations outpaced sales to Canada. 

A refinery in Curacao led the list of destinations, fueled by demand for lighter-weight U.S. crude grades to dilute heavy Venezuelan oil for processing. The refinery, operated by Venezuela's state oil company PDVSA, has a capacity of 330,000 barrels per day and received shipments of U.S. oil averaging over 50,000 barrels a day through May. 

The oil refining hub at Amsterdam/Rotterdam was second on the list at 40,000 barrels per day, driven in part by low spot rates for tankers and discounts on back-haul voyages. EIA noted that refineries in the Netherlands often trade with their counterparts on the U.S. Gulf Coast – for example, shipping bunkers from Rotterdam to Texas. Instead of returning to the point of origin in ballast, tanker operators will discount rates for carrying crude on the back-haul voyage, reducing its delivered cost. 

The Republic of the Marshall Islands, which came in at number five with 14,000 barrels per day, has no refineries; the archipelago is better known for its beautiful beaches and coral reefs. EIA suggested that it is listed as a final destination for cargoes which will be transferred ship-to-ship at sea, or where vessels will await orders before proceeding to a final destination in Asia. 

EIA believes that a slim spread between the U.S. West Texas Intermediate benchmark and the Brent global benchmark will keep a ceiling on the volume of overseas crude sales, despite historically low shipping rates. The Census Bureau confirms the agency's view; in data published last week, the bureau found that U.S. oil exports were down by over 40 percent month-on-month in June, led by a sharp decline in shipments to Curacao. Observers suggested that the close pricing on Brent and WTI in the early part of the year was responsible for the lower export activity.