December exports of US crude WTI look likely to fall because of record high freight rates and weather-related disruptions to export operations.
The cost of shipping light sweet WTI on an Aframax tanker to Europe climbed to the highest ever at $10.18/bl on 18 November, on record-high US crude flows to European refiners as they prepare for the 5 December implementation of the EU's ban on seaborne imports from Russia (see graph). Aframax loadings have also been relatively unhindered by disruptions affecting very large crude carrier (VLCC) exports, helping to boost the freight rate.
Many US traders have been seeking to load crude for export on VLCCs instead of Aframaxes, which are traditionally used to ship oil to Europe, to save on freight costs. But loading operations for the larger tankers have been disrupted this month by bad weather. Crude usually has to be loaded on VLCCs along the Texas coast through reverse lightering, where the oil is first put on an Aframax or Suezmax and than moved to larger tankers by ship-to ship (STS) transfer.Butreverse lightering operations were halted on 15-22 November by high waves caused by a cold front along the Gulf coast. The disruption, combined with strong demand to ship crude on VLCCs, may lead to a backlog of tankers waiting to load at the US Gulf coast as far out as mid-December.
Around 26 VLCCs are already on subjects to load at the Gulf coast in the next 30 days and more than 20 are expected to arrive in the region by the end of December for orders. Around 95pc of the VLCCs loading at the Gulf coast will need at least one STS transfer to be fully loaded, and at least nine tanker loadings have already been delayed past their scheduled dates.
Lightering operations were expected to return to normal by 23 November, but another cold front brewing in the US Gulf of Mexico could halt activity again by 26-27 November. The US Gulf coast is also nearing the fog season, usually from December to early April, when significant weather changes can cause further constraints to export operations as ship channels are forced to close to vessel traffic during periods of poor visibility.
Lighter side
WTI sank to a discount of around $7/bl to Ice February Brent on a fob basis on 22 November, its lowest since April 2020, as the halt to lightering operations hindered VLCC exports(see graph). Prices have rebounded slightly with the resumption of lightering offshore the Corpus Christi port hub. Prices are now equivalent to a $4.60/bl premium to North Sea Dated after estimated delivery costs, or about $2/bl higher than the level at which traders have pegged the grade at the Netherlands port of Rotterdam, leaving it unprofitable to export to Europe. Waterborne spot crude prices are widely expected to remain under pressure given that many trading firms will draw down inventories to avoid end-of-year taxes, which could lead to an increase in supplies at a time of export constraints.
The recent halt to lightering operations and the record Aframax freight rates could undermine US crude exports. The US exported 3.47mn b/d of crude in the first nine months of 2022, up by over 19pc on a year earlier, and is on track to reach a new record high, according to the latest available monthly statistics from the US Census Bureau.
US crude exports to Europe rose to a record 1.47mn b/d in January-September, up by nearly 44pc from the same period in 2021 (see graph). Exports to top destinations the UK and the Netherlands climbed by 28pc and 46pc, respectively, to record highs of 330,000 b/d and 341,000 b/d, while a handful of other countries have more than doubled their intake of US crude year on year.
