US crude exports boosts tanker market

Aug 30 2019


Two new export-oriented pipelines to ship crude from the Permian Basin to Corpus Christi are coming on stream this quarter.

Combined, the Epic and Cactus II pipelines will be able to move more than 1 mill barrels per day to the US Gulf coast. Further expansions are planned in the coming years, Poten & Partners said in a comment. 

US Gulf crude oil exports already provide significant employment for the tanker market, and this will increase further once additional pipeline capacity is available, while the dramatic growth in US oil production has had a significant impact on the global oil trade in recent years.

Conversely, US crude oil imports have declined as a result of higher domestic production but have not completely replaced imports. Since the crude oil export ban was rescinded in late 2015, exports have increased dramatically.

To analyse the impact on the tanker market, Poten compared the seaborne crude oil trade flows of the first six months of 2015 (prior to the lifting of the export ban) with the first half of 2019 for VLCCs, Suezmaxes and Aframaxes.

In 2015, US crude oil production averaged 9.4 mill barrels per day. By the first half of this year, output had reached 12 mill barrels, an increase of 2.6 mill barrels per day. Over the same period, domestic demand (refinery needs) grew from 16.1 to 16.7 mill barrels.

If crude oil was a homogeneous commodity, this would mean that US imports should have declined by 2 mill barrels per day. However, there are a lot of different crude oil qualities and several US refiners, especially as those in the Mid West and the US Gulf are more geared towards heavier sour crude oil than the lighter grades produced from shale.

This makes the import/export picture more complex and potentially more attractive for the tanker market, as imports are maintained at a fairly high level and (most of) the increased domestic production is being exported, Poten said.

US seaborne crude oil exports increased from 1.3 mill barrels per day in 1H15 (mainly to Canada, which was exempt from the export ban) to 3.6 mill in the first half of this year. On the other hand, seaborne imports decreased by only 0.4 mill to 5.5 mill barrels per day.

Imports into the US Gulf decreased by 640,000 barrels while imports into the Atlantic Coast and the West Coast actually increased marginally. However, the expected closure of the PES refinery in Philadelphia will likely change the US East Coast situation.

What has been the impact on global trade volumes between 2015 and 2019? The world’s total crude oil trade increased from 46.8 mill barrels per day in 2015 to 49.6 mill barrels in 2019, an increase of 5.8%, roughly in line with global oil demand growth of 5.2%. 

In contrast, global tonne/mile demand increased twice as fast, by 11.9% over the same period, as the average laden haul increased from 3,470 miles to 3,670 miles, largely as a result of the growing long-haul US crude oil exports.

The largest Asian US crude importers are South Korea and Taiwan, plus China prior to the escalation of the trade war. For these importers, the market share of Middle East barrels has declined by 10%, compared to 1H15 (from 64% to 54%), as they have diversified their imports. The US has captured half of these barrels,with the remainder coming from other long-haul sources in the Med, Latin America and West Africa.

VLCCs are the main vessel types involved in these trades. Aframaxes and to a lesser degree Suezmaxes, benefit from the reverse lightering trades to load VLCCs. The other important US crude destination is Northwest Europe, in particular the UK and the Netherlands, where it mainly replaces West African and to a lesser extent Mediterranean and Black Sea barrels.

This shift in trade flows only has a small impact on the tanker market.

US crude oil exports are expected to increase significantly in the coming years. Some forecasts expect volumes to reach 6 mill barrels per day. Since Asia will continue to be the driver of future oil demand growth, the multiplier effect of longer average distances is expected to boost tonne/mile demand in the same way it has done since US exporters burst onto the scene in 2016.

This can give the tanker market, in particular VLCCs, a significant tailwind in the coming years, Poten concluded.

Meanwhile, last Friday, China threatened to slap a 5% tariff on US oil imports, which could further soften demand for physical crude at hubs along the US Gulf Coast, where exporters already have taken to shipping crude overseas without firm buyers, traders said, talking with newswires.

In recent weeks, PADD 3 inventories rose to the highest in a month, at 225.1 mill barrels, and were 12.4 mill barrels higher than at the same stage last year, US government data showed.

 



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