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Asian refiners are after U.S. crude oil, according to brokers that Reuters talked to, as WTI continues to trade at a comfortable discount to Brent. Enquiries into shipments of crude from the Gulf of Mexico and the Caribbean have now turned into orders, after OPEC announced it had agreed with its partners from the Vienna Club to extend supply cuts until the end of 2018.
In an ironic twist for the Vienna Club, their efforts to prop up prices are benefiting their greatest rivals—U.S. producers—arguably more than the Vienna Club itself. Higher prices have allowed shale boomers to expand production and hedge it, too. Besides, with the market expecting the cut extension, prices remained stable after the official announcement, keeping the price gap between WTI and Brent that has made U.S. crude so much more attractive recently.
According to data from Thomson Reuters Eikon, crude oil shipments from the Gulf of Mexico and the Caribbean to China, Japan, South Korea, Singapore, and Taiwan jumped from about 500,000 bpd at the beginning of this year to over 1.2 million bpd. Data from Kpler showed earlier that in October, the amount of crude leaving U.S. ports averaged 1.6 million bpd, a lot of this bound for Asian refiners.
Related: U.S. Shale To Surge After OPEC Extension
Shipments of U.S. crude to Asia will likely continue to rise as production, especially in the shale patch, jumps, but according to JPMorgan’s head of regional oil and gas Scott Darling, this will eventually have a negative effect on prices. Speaking to Bloomberg, Darling said that rising shale production—which could, thanks to now higher oil prices, hit 1 million bpd from the Permian alone—would ultimately cap the upward potential of prices.
In that warning, Darling echoed Continental Resources’ Harold Hamm, who earlier this year warned his fellow shale boomers not to overdo the growth lest they bring about a repeat of the 2014 oil price collapse.
Based on reports about still stringent cost controls, spending discipline and focus on productivity boosting, this is now less likely than it was right after the original OPEC cut agreement was announced. Shale boomers will seek to make the best of the price situation while the OPC and Russia cuts are still there.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.