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Flood of U.S. Oil to Asia Comforts Tanker Market Trashed by OPEC

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  • Flood of U.S. Oil to Asia Comforts Tanker Market Trashed by OPEC

OPEC all but trashed the tanker market with its output cuts. That the damage hasn’t been even worse is thanks in large part to a flood of U.S. crude exports, particularly to Asia.

China zoomed past Canada to become the biggest foreign destination for American crude in February, accounting for more than 8 million barrels of U.S. cargoes. Tanker tracking is indicating no let up in U.S. oil flooding to Asia in March, boosting shipments on what is one of the industry’s longest-distance trade routes.

Freight rates for oil collapsed this year after the Organization of Petroleum Exporting Countries and other nations reliant on crude sales announced production cuts in a bid to prop up prices. The curbs have driven Chinese and other Asian buyers to places like the U.S. and the North Sea to source crude like never before, adding the vital ingredient of distance to tanker demand.

“The U.S. exports have been a big saving grace,” said Jonathan Lee, chief executive officer of Tankers International LLC in London, operator of the world’s biggest pool of supertankers, known in the industry as very large crude carriers. “Is America becoming a swing producer of pricing and quantities? For us there could be an argument to say yes.”

Crude Tankers Heading to Asia

The U.S. exported 8.08 million barrels of U.S. light crude to China in February, nearly quadrupling its January flows, according to data released by the U.S. Census Bureau Tuesday. That helped boost total monthly U.S. exports to a record 31.2 million barrels.

Tanker tracking data show a continuation of the trend. Supertankers with the capacity to move 4 million barrels are en route to Chinese ports. A further 7 million barrels are being shipped to Singapore, a refueling point for vessels ultimately sailing to China. All the ships in question are sailing east, rather than around South America and across the Pacific Ocean. The data include deliveries on 1 million-barrel hauling vessels called Suezmaxes, which Lee says are also benefiting from the surging U.S. outflow.

Even so, the shipments from the U.S. and elsewhere in the Atlantic Basin only mean rates are less bad than would they would have been otherwise. OPEC, along with its non-member allies, pledged to cut about 330 million barrels from the global oil market in the first six months of this year. With about 40 percent of global crude output getting moved by sea, that would imply the removal of about 130 million barrels from the supertanker market. There’s also speculation that the cuts, initially planned to run for six months from January, may be extended through December.

“If you look at total crude exports, it’s down,” said Frode Moerkedal, an analyst at Clarksons Platou Securities, the investment banking unit of the world’s largest ship broker. “Overall the slowdown in volume growth has trumped the increase in trading distances.”

Even so, while benchmark tanker rates fell from around $70,000 a day in December to below $15,000 a day in March, they still cover basic costs. In the worst markets, owners are sometimes willing to contribute to fuel costs on certain trade routes. Expenses like crew, insurance and repairs amounted to $10,159 a day for an average VLCC in 2015, according to the most recent estimate from Moore Stephens, a consulting firm in industry expenses.

That rates aren’t worse is partly thanks to Asian refiners scouring the earth to replace supplies lost from OPEC’s core members in the Middle East. West African exporters — including Nigeria, which is exempt from the producer club’s cuts — are sending record amounts of oil to Asia this month, tanker tracking data show.

Those surging supplies from the Atlantic Basin have helped prevent earnings from falling much below a ship’s operating costs, said Andreas Wikborg, equity analyst at Arctic Securities. Central and South American producers have been adding support too, boosting output and sending more to Asia, he said. At the same time, the North Sea sent an additional nine million barrels of crude to Asia in the first three months of 2017 compared with 2016.

“Definitely the Atlantic Basin is helping keep rates at an ‘OK’ level compared to where they could have been,” Wikborg said. “An OPEC cut is bad news for tankers, but part of the lost volumes are to a degree being compensated for by increased distances. If the U.S. export ban hadn’t been lifted it would have put increased pressure on rates.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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