US Exports Fuel Record Highs
The effect that the US oil exports surge is having on the tanker market is starting to take shape. In its latest weekly report, shipbroker Charles R. Weber said that “crude tanker fixtures servicing US crude exports jumped to a record high of 3.1 Mnbbls in September, building on directional gains since the start of the year, aided by offline refining capacity due to Hurricane Harvey, rising US crude production and advantageous pricing for US crude grades against Brent”.
According to CR Weber, “in part, the surge owes to the aftermath of Hurricane Harvey. EIA data shows that PADD3 refinery utilization, which covers the US’ Gulf Coast region, dropped to a low of 60.7% during the week following Harvey’s Texas landfall and subsequent flooding. This was the lowest utilization rate since the height of the global financial crisis in the fall of 2008. During the first eight months of the year, utilization rates in the region average 92.8% ‐‐ which compared with 91.0% during the same period in 2016”.
The shiproker added that “whereas Hurricane Harvey’s role likely facilitated some of the surge on a temporary basis, resurgent domestic crude production points to a directional trend unlikely to abate anytime soon. EIA data shows that continental US crude production has risen sharply since 2H16. Technological advances have enabled selective production at wells, which has greatly reduced sensitivity of production levels to crude prices. Baker Hughes data shows a US crude rig count of 750 this week, which is a 131% gain from a year ago. As a result, crude oil production stands at 9.547 Mnb/d – just shy of a 2015 peak of 9.610 Mnb/d in mid‐2015 and a strong gain on a mid‐2016 low of Harvey saw the production rate temporarily drop to a low of 8.781 Mnb/d, implying that just as refining capacity was shuttered, so too was a share of crude production, thus tempering the implications of the lost refining capacity for crude exports. Additionally, prevailing prices make US crude attractive to export markets. Compared with the spot Brent price, on Thursday’s close WTI was trading at a discount of $7.18/bbl, or 12%, while LLS was at a discount of $2.05/bbl, or 4%”, CR Weber concluded.
Meanwhile, in the VLCC tanker market this week, CR Weber said that “rates in the VLCC market extended gains this week as market participants took stock of narrowing fundamentals and as fresh demand strength bolstered owners’ sentiment. The Middle East market observed 33 fixtures, representing a 22% w/w gain while the tally in the West Africa market posted a gain of one fixture to seven. These demand levels built upon the earlier exiting of some October Middle East positions to the Atlantic basin to allow a further balancing of the supply/demand positioning. With the Middle East market now firmly in second decade of the October program, we note that surplus availability has declined further. With 57 October cargoes covered to‐date, we anticipate a further 26 will materialize for loading through October 20th.
Against this, there are 46 units showing availability during the same period and, once accounting for likely draws to the Atlantic basin, the projected surplus is 14 units. This compares with 17 surplus units at the conclusion of the month’s first decade and 29 surplus units at the end of the September program. Earnings appear to be lagging the narrower fundamentals; a week ago we noted that first decade’s reduced surplus suggested an AG‐FEAST TCE of around $22,750/day. While strong gains have already materialized, our model suggests that further near‐term upside potential remains”, the shipbroker concluded.