NEW YORK: U.S. crude oil is flooding into Asia, and may continue to do so as the arbitrage window that was initially created by Hurricane Harvey remains open, even though the disruption from the costliest storm to hit the Gulf of Mexico has faded.
A record amount of U.S. crude is scheduled to arrive in Asia in November, according to vessel-tracking and port data compiled by Thomson Reuters Oil Research and Forecasts.
The data show 19.7 million barrels of U.S. oil is due to arrive across Asia in November, equivalent to about 657,000 barrels per day (bpd). The data are filtered to show only vessels that are currently underway, and those that are discharging or have discharged their cargoes.
This is more than a 50 percent jump on the 427,000 bpd that was offloaded in Asia in October, and also above the previous record-high month for U.S. crude shipments to Asia of 541,000 bpd from June.
It also appears that December will be another month of strength, with 11 vessels carrying a combined 16.5 million barrels of crude already en route from U.S. Gulf ports to Asia.
When Hurricane Harvey struck the U.S. Gulf coast in late August one of the initial impacts was a drop in the price of West Texas Intermediate (WTI), the main U.S. light crude grade.
At that time it became likely that U.S. exports to Asia would ramp up given that WTI’s discount to the global benchmark light crude, Brent, widened to $5.46 a barrel at closing prices on Aug. 29.
This was enough of a gap to overcome the higher freight rate to ship from the Gulf coast to Asia, compared to similar grades of crude from African producers such as Angola and Nigeria.
WTI’s discount to Brent had been just $2.48 a barrel at the end of July, which made it harder to make a profit shipping U.S. crude to Asia.
But instead of narrowing back as refineries recovered along the U.S. Gulf coast after Harvey and started processing crude again, WTI’s discount to Brent has remained at elevated levels.
At the close of Nov. 10, Brent commanded a $6.78 premium over WTI, which is even higher than what it was in the immediate aftermath of Harvey.
This makes it likely that U.S. crude will continue to flow to Asia at robust levels, as the discount provides a profitable trade for U.S. shale drillers and other oil producers.
