US Exports Make More Waves, Taking Opec Share In Core Asian Markets

Record US crude exports are competing with Opec producers in their core Asian markets. The country’s changing import slate is also making waves.

US crude exports have recovered from early-September’s hurricane-induced slump, and then some. Exports soared to 1.80mn b/d for the first 27 days of October, blowing the previous record of 1.12mn b/d set in February out of the water. The provisional weekly data also indicate that September exports, at 1.26mn b/d, also topped the February figure, whilst the latest weekly data (for week ending 27 October) saw volumes top 2mn b/d for the first time ever, with 2.13mn b/d shipped.

And close to 50% is going long-haul to Asia, with record buying spurred by a discount of around $6/B for US marker WTI versus global marker Brent – an exceptionally high level for two grades that are roughly similar in crude quality terms.

China was the top US customer in August, the latest month for which complete data are available, taking 145,000 b/d, though, given the slump in overall US exports that month (to 772,000 b/d, the lowest level since January), this is well down on the record 342,000 b/d set in February.

This record was likely beaten last month, however, with a veritable flotilla of tankers fixed to take crude from the US Gulf to Asia during October and the first part of November. We could be looking at near 1mn b/d headed for Asia over recent weeks.

US exports would be higher still were it not for soaring domestic demand, with that for gasoline hitting a record 9.64mn b/d in August.

With some 44% of August exports headed for Asia, China is not the only Asian country to be receiving bumper US volumes. Some 65,000 b/d headed for Korea in August, whilst a record 58,000 b/d (that is to say the equivalent of one VLCC of 1.8mn barrels) set sail for India. Volumes to India have since leapt, with three Indian refiners, Bharat, IOC and HPCL buying October-loading cargoes.

Whilst the US oil industry consists entirely of private companies selling where they can get the highest price, the same cannot be said of China. With US President Donald Trump set to visit China next week, it is possible that the recent surge in Chinese buying of US crude may be in part due to Beijing pressuring state firms to step up purchases as a way of nominally reducing the two countries’ gaping trade balance – a way of giving the Tweeter-In-Chief an easy victory on a bugbear issue without conceding anything of substance.

Whilst this is speculation, Chinese state firm Sinopec has been engaged in discussions with US companies with a view to building a new pipeline to enable more crude from the Permian of north Texas to reach the Gulf coast. The other key part of the plans would see a new export terminal able to load 2mn barrel-capacity VLCCs. The US currently lacks an export terminal able to load these giant tankers, which are the mainstay of long-haul crude shipments. This in turn effectively depresses the fob price US producers can achieve for their crude given that currently (and likely in future) the marginal barrel is headed for Asia.

US IMPORTS: IRAQ OVERTAKES SAUDI

Of course, despite the bumper exports, the US remains the world’s #2 crude importer (the US was number one as recently as last year but China has since soared ahead with imports of 8.53mn b/d for January-September 2017 versus 7.97mn b/d for the US).

But here too US trading patterns have been making waves, with imports from Saudi Arabia falling to just 504,000 b/d in October (based on weekly data to 27 October) the lowest monthly figure since 1987. For the week ending 27 October the US imported a mere 415,000 b/d from Saudi, the lowest weekly figure since 2010.

Iraqi volumes meanwhile are at the highest level since 2008. They have topped those from Saudi for four of the last five weeks, at 767,000 b/d for 1-27 October, and a whopping 966,000 b/d – twice the Saudi figure – for the most recent two weeks’ data (14-27 October).

To be fair to Saudi Arabia, the country’s Energy Minister Khalid al-Falih in August flagged up an impending slump in shipments to the US.

In addition, the divergence of benchmark prices means any Gulf producer selling oil in the US is getting several dollars a barrel less than it could in Asia (see box, MEES, 3 November ).

Saying that, looking at the WTI price alone is misleading. WTI is a light sweet crude priced at the inland storage hub of Cushing, Oklahoma. Sour US grade Mars from the offshore Gulf of Mexico is more analogous with Mideast grades both in terms of quality and Gulf coast delivery location; and Mars has typically achieved a $2-3/B premium to WTI in recent months, though this is still a $3-4/B discount to Brent.

Turkish Crude Imports ('000 B/D): Resurgent Iran Usurps Iraq As Top Supplier

CLUB MED: IRAN OVERTAKES IRAQ IN ALL THREE KEY MEDITERRANEAN CRUDE MARKETS ('000 B/D IMPORTS)

Turkey

Italy

Spain

Total ‘Med 3’

IRAQ CLUBBED IN MED BY RESURGENT IRAN

For Iraq the switch to long haul markets comes as access to the short-haul market of Europe has been severely curtailed by the halting of shipments of Baghdad-controlled output via the pipeline to the Turkish Mediterranean port of Ceyhan ( MEES, 3 November ).

Turkey itself, along with number one Mediterranean consumer Italy, had long been the largest buyer of these shipments – in 2015 Iraq supplied almost half of Turkey’s crude imports, some 229,000 b/d out of 502,000 b/d (see chart). But Iraq’s market share has slumped below 30% so far this year as federally-controlled exports lost regular access to the Ceyhan route with Turkey declining to become a key customer for KRG-controlled volumes.

Of course Iraq can, and does, ship cargoes of Basra crude to the Mediterranean via its southern ports. But in doing so it is giving up any comparative advantage over other Gulf suppliers.

Kuwait, which shipped zero to Turkey until late 2015, now supplies around 40,000 b/d.

But it is Iran that is the key winner. Iran has this year overtaken Iraq as the top Gulf supplier to both Italy and Turkey (the two countries are also the top two overall suppliers to Turkey; for Italy Azerbaijan is #1 with 251,000 b/d for January-August 2017, whilst Russia is just behind Iran and Iraq at number four).

In the other key Mediterranean market, Spain, Iran has also soared ahead of Iraq, though here Saudi Arabia for now remains top Gulf supplier whilst Mexico and Nigeria with 190,000 b/d, each are the top two overall (see charts).

These soaring Mediterranean imports of Iranian crude give some context to Asian import data which show a slump between April and August before a rebound for September (see chart, p20: import data for key European countries is not yet available for September).

For the year to date, China is Iran’s top customer taking 628,000 b/d, followed by India with 499,000 b/d, South Korea 375,000 b/d, Turkey 251,000 b/d, Italy 175,000 b/d and Japan 165,000 b/d.

SAUDI: STILL BIG IN JAPAN, BUT A BIT LESS SO

Whilst Saudi has sought to be a paragon of Opec cuts, losing market share this year in several Asian countries as well as the US, this has not been the case in its number one market, Japan ( MEES, 27 October ). However, the latest Japanese import data for September indicate that Saudi may be willing to give up market share even here.

Japanese imports from Saudi Arabia fell to 1.18mn b/d in September, from a bumper 1.345mn b/d for July-August, though this still represents 37% of overall Japanese imports ( MEES, 3 November for full data).

Whilst Iranian volumes are down this year they jumped to a six-month high of 216,000 b/d in September.