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U.S. Gulf Coast Crude Exports Fall As Freight Costs Surge

Fuel oil

U.S. Gulf Coast crude oil exports have been slowing in recent weeks, due to arbitrage constraints because of surging freight rates, S&P Global Platts reports, citing market participants’ expectations of 1.7 million bpd-1.8 million bpd of exports for November.

Freight rates started to increase early in October for all ship classes, with rates trending higher due to routes delayed by weather, more lightering activities, and increased ship movement between Mexico’s east coast and the U.S. Gulf Coast.

Arbitrage looks closed for U.S. Gulf Coast to Asia, according to some traders, despite healthy demand for both sweet and sour crudes and despite the willingness of Asian buyers to pay more for crude oil.

The Chinese market is hot, but due to the reluctance of Chinese refiners to import U.S. crude due to the tariffs, demand in China is for South American or West African crudes, an arbitrage crude seller told Platts.

According to the latest available EIA monthly data, U.S. crude oil exports hit the 2 million-bpd monthly mark for the first time in May this year, and exports held above 2.1 million bpd in June and July, with record (so far) monthly exports at 2.2 million bpd in June.

Since the United States removed four-decade-long restrictions on crude oil exports at the end of 2015, U.S. exports have increased. Helped by higher oil prices that renewed shale activity, these exports have continued to rise over the past year and a half.

In the first half of 2018, crude oil surpassed hydrocarbon gas liquids (HGL) to become the largest U.S. petroleum export, with 1.8 million bpd of exports in the first half of 2018, EIA said last month. U.S. crude oil exports increased by 787,000 bpd, or by nearly 80 percent, from the first half of 2017 to the first half of 2018.

U.S. crude oil exports could increase to 3.9 million bpd by 2020, up from just above 2 million bpd now, mostly driven by rising production in the Permian, the Houston Chronicle reported earlier this month, citing a report by S&P Global Platts.

By Tsvetana Paraskova for Oilprice.com

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