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Record U.S. Crude Exports Squeeze North Sea Oil

North Sea

Record-high U.S. crude oil exports are putting pressure on North Sea oil as American oil is now flowing to Europe and to the prized Asian market, which has become increasingly important for determining North Sea oil prices and the Brent benchmark.

U.S. crude oil exports hit a record-high of 1.98 million bpd in the week to September 29, EIA data showed last week. This was the highest weekly average since the U.S. removed restrictions on crude oil exports at the end of 2015, after a four-decade ban. Last week’s figure also beat the previous record set by U.S. exporters, which was hit in the previous week, at 1.5 million bpd. Oversupply due to Harvey drove the higher exports, but most of all, it is the wide spread of around $6 between WTI and Brent prices that drives buyers to lust after the cheaper U.S. crude grade. The spread is also wide enough to offset shipping costs to destinations like Asia and Europe.

“Get to a $4 spread and you can take it anywhere in the world,” R.T. Dukes of Wood Mackenzie told The Wall Street Journal last month.

The record U.S. exports volumes are now equal to the amount of crude oil typically shipped from the North Sea, according to Bloomberg data.

“It’s direct competition to North Sea production on many different fronts,” Olivier Jakob, managing director at Switzerland-based Petromatrix, told Bloomberg.

“It will be more difficult for the North Sea to push some of its barrels outside of the region. It creates competition. It’s going to be a bearish factor for the North Sea market,” Jakob noted.

Analysts expect the U.S. exports to stay high in coming months until price differentials converge.

According to an S&P Global Platts preview ahead of this week’s EIA data, the shifting economics has provided strong incentive for exports, and U.S. grades will remain competitive with rival grades in the short term.  

Related: U.S. Shale Isn’t As Strong As It Appears

“The forces of arbitrage should eventually cause the Brent/WTI spread to narrow further, but until then exports will likely remain elevated based on U.S. crude’s competitiveness with rival grades,” S&P Global Platts Oil Futures Editor Geoffrey Craig says.

WTI is at a discount to North Sea crude grades Forties and Ekofisk, it’s more affordable in the Mediterranean against Azeri Light and Nigeria’s Bonny Light, as well as Russia’s Sokol and ESPO, Vietnam’s Bach Ho, and Malaysia’s Kikeh, S&P Global Platts calculations show. Moreover, the Dubai crude swap—the benchmark for Middle East supply to Asia—is now at its biggest premium to WTI in more than two years, S&P Global Platts said.

By Tsvetana Paraskova for Oilprice.com

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