US Gulf coast pricing is becoming increasingly relevant to global crude trade
Rising US crude output, the end to US export restrictions and expanded regional transport infrastructure have redirected crude flows to the Gulf coast and helped it become an important exporting market.
More than 1.25mn b/d of crude was exported from US ports in September, with shipments rising to 2mn b/d towards the end of the month, preliminary US data show (see graph). Hurricane Harvey, which disrupted nearly a quarter of US refining capacity at its peak, left a backlog of unsold supply and boosted exports. The September surge helped drive January-September exports to 940,000 b/d, more than 50pc up on a year earlier.
US crude is increasingly moving further afield. Close to 35pc of exports were shipped to Asia-Pacific refiners in January-August, up from just 6pc a year earlier. Chinese buyers have contributed in large part to the increase, taking 170,000 b/d of US crude this year, up from around 10,000 b/d a year earlier. Japanese and South Korean refiners are buying more, while Indian refiners have begun to issue tenders that specify exclusively US supply. More than a fifth of exports were shipped to Europe.
Deliveries have been helped by Opec and non-Opec production cuts that have taken 1.6mn b/d of supply out of the market, tightening mostly medium and heavy sour crude supplies. The shortfall has bolstered demand for US Gulf coast Mars and other similar medium sour crudes.
Mars prices in the Louisiana coast market and WTI prices in Houston — which represent Permian basin crude delivered by pipeline to the hub — are increasingly linked to global fundamentals. Both have risen against WTI Cushing since Hurricane Harvey made landfall. High exports from the region, which offset slower Gulf coast demand because of refinery disruptions in the aftermath of the storm, underpinned the firmer values.
New infrastructure has started up to support shipments following the end to crude export restrictions in December 2015. Shipments were already being redirected to the Gulf coast, home to nearly 50pc of US refining capacity, away from the WTI hub at Cushing, Oklahoma. Enterprise and Enbridge completed the reversal of the Seaway pipeline in 2012, which, alongside TransCanada's Marketlink system, has become a key conduit carrying crude from Cushing to the Texas coast.