Rising production and favorable export dynamics have positioned the US to increasingly fill spare crude demand globally
Total US crude export volumes increased in the first three quarters of 2017 to reach 95.8mn bl, or roughly 1.03mn b/d in the third quarter, according to government data. This reflects a 53.7pc increase compared to the same quarter of 2016, spurred along by rising international oil prices compared to the domestic benchmark West Texas Intermediate (WTI).
The prompt-month Nymex WTI futures contract has averaged near a $6/bl discount to European marker Ice Brent over the fourth quarter. The arbitrage to export crude from the US Gulf coast becomes favorable after WTI's discount to Ice Brent surpasses port and transportation fees. Long-haul cargoes on very large crude carriers (VLCCs) cost roughly $3.75/bl to deliver, while Aframax tankers can carry US Gulf coast crude to eastern Canada for $1.80/bl.
The US Energy Information Administration (EIA) estimates total 2017 average output at 9.6mn b/d, and predicts production will reach a record-high of 10.02mn b/d next year. Opec anticipates US supply will grow by 1.05mn b/d in 2018, which reflects nearly 70pc of the 1.51mn b/d projected for world oil demand growth in the organization's latest Monthly Oil Market Report (MOMR).
South Korea, which has traditionally relied on the Middle East for upward of 85pc of crude imports, is beginning to replace some of that supply with crude from the US, Mexico and Kazakhstan. SK Innovation, the country's largest refiner, intends to buy at least 7.5mn bl of North American crude by January as an initial step in South Korea's diversification drive and to help narrow Seoul's trade surplus with Washington.
Indian state-controlled refiners as well as Reliance Industries have shown growing interest in US crude. Indian companies bought 10.5mn bl of US crude oil in the second half of this year and continue to issue near-weekly tenders that shortlist several US crude grades.
Polish firms PKN Orlen and Grupa Lotos made their first-ever purchases of US crude in the final three months of the year, and Lotos on 13 December announced plans to import at least five more cargoes in 2018. Russian Urals accounted for more than 86pc of the crude processed at Lotos' 210,000 b/d Gdansk refinery in the third quarter of 2017, up from 78pc in the prior quarter. In October, Lotos had said it intended to sign term contracts for the supply of non-Urals crude once its new delayed coker unit (DCU) becomes fully operation in the second half of 2018.