Waterborne crude exports from the U.S. Gulf Coast increased 2.9mn bbls (411,000 bpd) to 17.7mn bbls (2.53mn bpd), for the week ending October 27, the most recent record high in a two-month trend of increasing movements, according to Genscape. Inventories fell precipitously the same week, as shipments moved substantial volumes to foreign shores. High export levels are likely to persist as long as global economics continue to support movements, providing a valuable outlet to U.S. stockpiles.
U.S. crude export volumes shatter records and continue to climb
The total for crude barrels leaving the U.S. in the week ending October 27 was a record high for the second consecutive week and the fourth time in the last six weeks, according to Genscape’s North American Waterborne report.
Exports have increased 10.1mn bbls in the last three weeks, and in seven of the eight weeks following Hurricane Harvey’s landfall in late August, by nearly 17mn bbls. PADD 3 exports for the week ending October 27 more than doubled the previous record high, which came before the recent boom in shipments to foreign destinations. During the week ending October 27, exports averaged more than 2.5mn bpd, exceeding some estimates of the Gulf Coast's sustainable exporting capability.
So far, the monthly export average in October is pacing 789,000 bpd higher at 1.8mn bpd than September at 1.1mn bpd, which was the most in a single month since the lifting of the crude export ban in December 2015.
Boosted by Hurricane Harvey, which shut about 3.7mn bpd of primary processing refining capacity on the Gulf Coast, the relatively wide recent spread between the NYMEX Light Sweet Crude (WTI) and ICE Brent contracts incentivized domestic producers to sell their crude to foreign buyers seeking cheaper options to Brent-based barrels.
Through October 27, the front-month WTI/Brent spread averaged $5.97/bbl on the month, up from $5.76/bbl in September, $3.81/bbl in August, and $2.45/bbl in July.
Much of the recent demand for American crude in October came from Asia, with a total 18.2mn bbls exported through October 27, up from 12.5mn bbls the month prior and 8.6mn bbls in August. Crude shipments to the Mediterranean also jumped in October, reaching 9.5mn bbls. This increase comes after only 2mn bbls were exported to the region in September and none were exported in the two months prior to that.
The U.S. Energy Information Administration (EIA) reported similar data in recent weeks. In its November 1 report, the EIA showed that about 2.1mn bpd of crude were exported for the week ending October 27, which was the highest level on record since data collection began in February 1991.
Crude storage inventory draws steepen as exports provide outlet
Strong international demand for American barrels has provided a relief valve for stocks in Texas and Louisiana. Genscape-monitored crude stocks in PADD 3 plummeted 7.6mn bbls to 147.4mn bbls for week ending October 27, according to October 31 Genscape storage reports, which is the first time that inventories dipped below pre-Hurricane Harvey levels since the storm’s landfall in late August.
Stocks in the region had generally been declining since earlier this year, with the exception of builds in August following widespread refinery outages. Monitored PADD 3 inventories decreased 37mn bbls between weeks ending April 28 and October 27. However, the destocking trend has steepened since exports started breaking records, with stock draws averaging nearly 3mn bbls each week since mid-September.
The EIA reported similar data for the week ending October 27, with total PADD 3 crude stocks declining 6.8mn bbls, according to a November 1 report.
Genscape data showed that inventories along the Texas Gulf Coast decreased 4.6mn bbls to 77mn bbls for week ending October 27, driven by a 3.9mn-bbl draw in Houston, where waterborne loadings surged.
Houston domestic waterborne loadings increased nearly 1mn bbls to 4.2mn bbls, climbing to the highest weekly loading volume since data collection began in August 2014. Four exports, accounting for nearly 3mn bbls, shipped from Houston ports with destinations in Spain, Italy, and the United Kingdom. Three more exports loaded at the Galveston, TX, lightering zone, carrying 4.2mn bbls to China, France, and the United Kingdom.
Meanwhile, storage levels in Louisiana fell 3.7mn bbls to 54.6mn bbls. Louisiana Offshore Oil Port (LOOP) Caverns and the St. James storage hub posted the largest draws in the Louisiana region. Inventories at the LOOP caverns fell 2.2mn bbls to 33.5mn bbls, while St. James dropped by 1mn bbls to 12.1mn bbls, according to Genscape's Louisiana Gulf Coast Crude Report.
Data collections at the LOOP caverns, LOOP Tank Terminal, and St. James storage facilities beginning March 31 show that these dips in storage are indicative of an overall Louisiana destocking trend. Stocks at all three terminals have consistently fallen between March 31 and October 27, contributing to a 24.2mn-bbl drop in overall Louisiana stocks.
Genscape’s crude storage coverage in Louisiana has increased to include five additional storage locations; in addition to St. James, coverage now includes LOOP Caverns, LOOP’s Tank Terminal, Phillips 66’s Alliance Refinery, Marathon’s Garyville Refinery, and Houma Pipeline Terminal.
The addition of the five terminals expands Genscape’s monitoring of storage capacity in Louisiana to 118mn bbls, allowing for crucial insights on Louisiana’s contributions to the Gulf Coast supply chain. Genscape now monitors 308mn bbls of crude storage capacity in PADD 3, accounting for 77 percent of the region’s total capacity, based on EIA data.
Pipeline flows to the Coast reflect export/storage trends
Monitored pipeline flows from PADD 2 to PADD 3 decreased 110,000 bpd to 1.7mn bpd for week ending October 27. The stunted supply to the Gulf Coast further contributed to the substantial draw in storage inventories there. Flows into Houston, where most of overall storage decrease occurred, fell 198,000 bpd to 1.7mn bpd.
Despite the notable decrease in pipeline flows, PADD 2-to-PADD 3 flows remained relatively high after reaching a record high the week prior. Flows averaged 1.7mn bpd between weeks ending September 29 and October 27. This compared to the previous 2017 average of 1.3mn bpd and a 2016 average of 1.1mn bpd.
The increase in barrels moving from PADD 2 to PADD 3 was due in part to export opportunities along the coast. Higher flows have also been supported by the addition of the 520,000 bpd Patoka, IL,-to-Nederland Energy Transfer Crude Oil pipeline (ETCOP), which began commercial operations in June. Heightened flows to PADD 3 may persist as new opportunities arise.
Continental Resources announced its first-ever sale of Bakken crude for export via a 1mn-bbl cargo for delivery to China, the company said in an October 17 release. The deal for November delivery went to Atlantic Trading and Marketing, the American trading subsidiary of French refiner Total. Atlantic plans to buy 33,500 bbls each day in November at Cushing, which will then be transported via pipeline for loading onto tankers at Texas ports, the release said.
"The current $6/bbl discount to Brent should not exist, given the consistency and high quality of WTI, as well as relative shipping costs," Continental Chief Executive Officer Harold Hamm said. "Modern modes of transport in the crude oil sector today eliminate price disparities between markets and allow free markets to work."
Implications
The recent uptick in U.S. exports has shifted fundamentals throughout international crude markets. Recent global economics have presented opportunities to certain industry players as American barrels have been able to play a larger role in markets around the globe. At the same time, this has introduced new competition for international producers.
On the domestic front, the export boom has helped alleviate the inventory glut along the Gulf Coast as Asian and European market demand has helped soak up stockpiles. High export volumes are likely to persist in coming weeks, but only as long as crude price differentials cover the high transportation costs of international shipments. Stock declines in the U.S., which are being driven by high waterborne movements, will likely put upward pressure on domestic crude prices. This could balance out global benchmark prices to some degree and eventually slow exports from the Gulf Coast.
Monitoring U.S. storage inventories will be critical for understanding these ever-changing dynamics. Storage levels will shed light on the effectiveness of exports in diminishing the U.S. oversupply, which will help predict changes to international price differentials. Genscape’s recently expanded coverage of crude storage will help provide deeper insight into inventory changes in Louisiana, as well as the broader PADD 3 region.
Genscape's Louisiana Gulf Coast Crude Report provides unrivaled insight into the Louisiana Gulf Coast supply chain, with accurate data on crude oil inventory levels, inbound rail deliveries, waterborne movements, and outbound pipeline flows. Click here to learn more or request a free trial of the Louisiana Gulf Coast Crude Report.