Renewed Optimism For US Crude Oil Exports
The recent lifting of a 40-year ban on oil exports by the US government has indeed reaped good benefits. Now, overseas sales of crude oil, which started on Dec. 31 are growing.
A report in Bloomberg says that giant companies including Exxon Mobil Corp and China Petroleum and Chemical Corp have joined independent traders such as Vitol Group and Trafigura Pte. to export American crude.
According to Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd. in London, the “growing volumes of exports” from the U.S. are now “spooking the markets.”
The oil analyst said the “flurry of export activity” is helping to support spot oil prices in the U.S. relative to contracts for later delivery.
Cheaper Transport Equals Growing Oil Export
So what is causing the growing oil export? Well, cheap pipelines and railways from the fields in Texas, Oklahoma and North Dakota into the ports of the U.S. Gulf of Mexico fees paved way for the rise of crude oil exports.
U.S. oil prices have also been trading at a discount to Brent crude, allowing traders to move oil from one port to another at a profit.
Ready for a Big Move
As American stockpiles of crude oil are increasing to groundbreaking levels, US crude oil tankers are exporting oil to other countries including France, Germany, the Netherlands, Israel, China and Panama.
With its increasing overseas sales, it is projected that US export of oil may eventually reach every corner of the global market.
In addition, American oil traders are expecting to ship more over the next few weeks, with new export routes starting from the U.S. West Coast and other new locations, including directly out of Cushing Bloomberg reports.
For one, Gunvor Group Ltd., a Swiss commodities trader with main offices in Geneva, signed up for $1.09 billion of revolving credit in working capital in December. They plan to ship 600,000 barrels of U.S. crude to a storage terminal in Panama. It’s then likely to ship the crude to Europe.
Tanker by Tanker, Overseas Sales Are Growing
Though US export of crude oil cannot surpass the OPEC giants like Saudi Arabia, Iran and Iraq and non-OPEC producers Mexico and Russia, the US overseas sale of crude oil is increasing.
Ian Taylor, chief executive of Vitol, the company behind the first export, believes exports will remain a “very marginal business” for the United States. In fact, it sees prices staying low for another decade and some oil operations shutting down and not restarting unless prices increase by another 50%.
However, tanker by tanker, US overseas sales are growing.
In fact, Enterprise Products Partners LP, one of the biggest operators of oil ports in the U.S., told investors this month, it expects to handle exports of crude and ultra-high quality oil, up to about 165,000 barrels daily during the first quarter. That is up almost 28 percent from the 2015 average. The partnership has assets of 49,000 miles of pipelines; 250 million barrels of storage capacity for oil-related products, and 14 billion cubic feet of natural gas storage capacity.
Saying Goodbye to the 40-Year Old Ban
Looking back, the 1973 to 1974 oil embargo by the Arab members of OPEC crippled the American economy and led to more dependence on oil imports.
Before the ban, the U.S. sold as much as 500,000 barrels a day overseas, from Alaska and a few other origins allowed under federal law.
When the ban was finally lifted, Exxon and Sinopec did not hesitate to start exporting crude oil.
Exxon just recently became the first major U.S. oil company to ship American crude from elsewhere, sending the Maran Sagitta tanker from Beaumont, Texas, into a refinery it owns in Sicily, Italy.
Then Sinopec followed and loaded onto the Pinnacle Spirit tanker a cargo of U.S. crude, a first for a Chinese oil group.
NYMEX Rising Again
At the end of January, after a big slump in NYMEX Crude Oil prices, there was a bump up that ended a few days before the end of the month, when the NYMEX slipped back to just above $26. Since that dip, the NYMEX has been steadily rising and is now back at $40 – higher than it started the year.