US crude oil exports disrupt European and Asian prices.
US crude oil exports disrupt European and Asian prices.
Surging U.S. Crude Exports Shake Up Global Oil Market
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The global oil market is experiencing a seismic shift as surging U.S. crude exports in 2023 disrupt traditional trade flows and put downward pressure on oil prices in Europe and Asia. This surge in U.S. exports is offering a key source of supply as producers worldwide cut output and sanctions on Russian crude limit trade opportunities.
One factor driving this shift is the introduction of the U.S. crude grade WTI Midland to set the price of the dated Brent benchmark assessed by S&P Global Commodity Insights. This move has not only boosted U.S. crude exports but has also helped to cap the prices of Brent and other crude grades priced off the benchmark. With Saudi Arabia cutting output beyond what was agreed upon in June, U.S. crude exports are playing a crucial role in offsetting the loss of supply.
This rise in U.S. crude exports signifies the increasing influence of the world’s biggest oil producer in the global market. It solidifies the role of U.S. supplies in balancing the market, especially in the face of limited outlets for sanctioned Russian crude.
According to the Energy Information Administration, U.S. crude exports have averaged 4.08 million barrels per day in 2023, up from an average of 3.53 million bpd in 2022. This surge in exports underscores the growing importance of U.S. crude in the global market.
Joel Hanley, the global director of crude and fuel oil markets at S&P Global, states that out of the 61 dated Brent assessments to July 27, WTI Midland has been among the most competitive in almost all cases. On half of those days, it has been the most competitive, effectively setting the price for the benchmark. This increased competitiveness has put pressure on other physical crude grades, leading them to lower their prices to compete with WTI Midland.
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One example of this pressure is seen in the price difference between Forties crude cargoes loading in the North Sea and the dated Brent benchmark. In July, the discount for Forties crude averaged 2.9 cents a barrel, down from a premium of 12.4 cents in June and 24.5 cents in May. This price adjustment is a result of other grades having to price themselves lower to stay competitive with WTI Midland, as stated by Rohit Rathod, a market analyst at energy researcher Vortexa.
The impact of U.S. crude exports is not limited to Europe. Even Asian markets for Middle Eastern crude are feeling the pressure. Murban crude from the United Arab Emirates, which is close in density to WTI Midland but with higher sulfur content, is used by traders to compare the economics of shipping WTI to the east. The premium of Murban futures to Dubai quotes has remained steady, while cash Dubai gained during the month, suggesting increasing competitiveness.
Adi Imsirovic, director at Surrey Clean Energy and former head of global oil trading at Gazprom Marketing and Trading, observes that there is a growing flood of WTI production in the global markets. Unlike crude from OPEC producers, WTI is freely traded without destination and output restrictions. Consequently, the value of WTI has become a key factor in global pricing.
The increased flow of WTI to Europe has weakened Brent futures relative to Dubai, which has also strengthened due to additional output cuts by Saudi Arabia. This reduction in high-sulfur Middle Eastern crude, particularly medium and heavy grades, has benefited low-sulfur Atlantic Basin crude, such as those from Europe, Africa, and Brazil. Asian buyers are finding these Atlantic Basin crude grades more affordable, and the demand for WTI Midland has risen in the region.
Despite the upcoming maintenance period for Asian refineries ahead of the Northern Hemisphere winter, there is still a great interest in bringing WTI to Asia. John Evans of brokerage PVM Oil highlights the attractive factors of WTI, including its discount to Dubai, expensive Saudi Arabian crude, and low freight rates.
Overall, the surging U.S. crude exports are reshaping the global oil market, causing traditional trade schemes to be re-evaluated. The influence of U.S. crude, particularly WTI Midland, is becoming increasingly dominant, with significant effects on oil prices, trade flows, and market dynamics. As U.S. exports continue to rise, global players will need to adapt to this new reality, and traditional market dynamics may undergo further shifts.
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