US Crude Exports – Gaining Ground
US crude oil exports surged to a record high of 1.8 mb/d in October 2017, 1.2 mb/d higher y/y. A few months earlier, the market had fervently questioned the ability of the US to export more than 1.2 mb/d, suggesting capacity constraints would cap departures at this level and result in large inventory builds on the US Gulf Coast. The viability of export arbitrage given the prevailing economics at the time and the international market’s appetite for ‘low quality’ US oil also came under scrutiny. But the reality on the ground was different, as physical players re-affirmed their belief in the adequacy of US dock capacity and the combination of wide WTI-Brent spreads and strong cash differentials in Asia and the North Sea lubricated the gears of arbitrage. Indeed, at the end of October, US exports topped 2 mb/d, exceeding even the most bullish of expectations and impacting prices, time spreads and key price differentials. This comment argues that US export volumes are dependent on several factors including US production growth, global balances, existing infrastructure and the quality of US crude oil. It also argues that there will be high level of variability in both export volumes as well as destinations each month as arbitrage economics shift and the oil market gyrates within seasonal patterns.