Monthly US crude exports tend to start the month off with a low EIA week, with the second half of the month typically stronger than the first. This is a function of monthly contract expiries and a typically backwardated market, which encourages buyers to wait and buy crude at a cheaper price once the previous month’s contract has rolled off the board. This tends to boost exports in the second half of the month. Still, November exports have been struggling to finish with their usual month-end flourish as inclement weather has hit the US Gulf in recent weeks, hampering reverse lightering operations. This added uncertainty and volatility helped exports to achieve their daily record on 17 November.
About 40% of US crude exports head to Asia, with most of these volumes loaded onto VLCCs; larger vessels make the most economic sense to transport crude further distances. There is only one port in the US Gulf, the Louisiana Offshore Oil Port (LOOP), which can fully load a VLCC, with medium sour Mars crude the usual grade loaded, but there are typically only a couple of VLCC loadings from LOOP per month. The rest of the VLCCs used for US crude exports are either partially loaded at the port of Corpus Christi at Enbridge’s Ingleside terminal or Buckeye’s South Texas Gateway terminal before receiving an additional parcel via reverse lightering in the US Gulf, otherwise, VLCCs are fully reverse lightered in one of the US Gulf’s lightering zones. Hence, winter storms have caused some delays.
Vast majority of flows are onboard VLCC / ULCCs
These storms in the Gulf have also disrupted flows to Europe, given that the region is now taking more VLCCs as it increases its reliance on US crude. Prior to 2022, volumes to Europe predominantly moved on Aframaxes, but given both higher volumes and higher Aframax freight rates as a result of changing Russian crude flows, European buyers have leaned more heavily on VLCCs – particularly during periods of demand weakness (ergo, low freight rates) this year for VLCCs, spurred on by subdued Chinese demand. The majority of the barrels that Europe is taking by VLCC have been light sweet – a reflection of the crude quality of ~85% of US crude that leaves the Gulf Coast, but as Europe has sought sour barrels this year to replace Russian crude, it has also pulled in 5 Mb of sour SPR barrels via Big Hill Sour, West Hackberry Sour and Bryan Mound Sour grades on VLCCs - as well as 3.25 Mb of Mars crude from LOOP. This is about a
Higher volumes into Europe facilitated by greater usage of VLCCs
Looking ahead to what could impact US crude exports in the immediate, medium and long term, there are a number of prescient factors that jump out. In the immediate term, elevated freight rates could provide headwinds to US exports as we move into 2023. Aframax freight rates have kicked higher, but so have VLCC rates, mitigating the benefit of a wide Brent-WTI spread, which has been present for much of this year.
As for the medium term, ExxonMobil’s 250 kbd expansion at its Beaumont refinery (known as BLADE - Beaumont Light Atmospheric Distillation Expansion) is set to come online in Q2 2023, boosting refining capacity at the facility to 633 kbd – bringing it in line with Motiva’s Port Arthur refinery, the largest in the US and making it the largest refinery expansion in the US in a decade. Given the refinery expansion’s focus on light crude, it could divert light sweet barrels away from the export market and towards domestic consumption instead unless US onshore production keeps ramping up. Offsetting the impact of this expansion could be further refinery closures on the Gulf Coast, with Lyondell Basell’s 264 kbd Houston refinery set to close by the end of next year.
Finally, for the long-term, Enterprise Products’ Sea Port Oil Terminal (SPOT), a proposed 2 Mbd oil export terminal offshore Texas, is getting closer to becoming a reality after it received federal approval to apply for a permit by the Maritime Administration (MARAD). Given this progress, construction of the terminal could begin in mid-2023, being completed by the end of 2024 and then commissioned in the latter half of 2025.
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