U.S. crude exports to Europe anticipated to fall in Jan as transport economics weaken

By Georgina McCartney, Arathy Somasekhar and Enes Tunagur

HOUSTON/LONDON (Reuters) – U.S. crude oil exports to northwest Europe are more likely to slip early subsequent 12 months after hitting a report excessive in November, because the arbitrage for transatlantic shipments has slammed shut and freight charges have climbed, analysts mentioned this week.

The unfold between U.S. West Texas Intermediate (WTI) crude and Brent futures has narrowed to a reduction of round $3.40 per barrel during the last two classes, the smallest closing unfold since October 2023. A narrower unfold makes it much less financial to ship barrels from the U.S. throughout the Atlantic.

“A reduction of $4, for my part, is all the time the road within the sand between a giant export quantity versus a small export quantity,” mentioned Bob Yawger, director of power futures at Mizuho (NYSE:MFG).

The tighter unfold comes as freight charges have elevated and inventories within the U.S. – together with on the key storage hub in Cushing, Oklahoma – have dropped to 23 million barrels, their lowest mid-December stage in 17 years.

The decline in stockpiles means U.S. barrels are being priced to remain at residence.

On the finish of November, the WTI/Brent unfold had widened to roughly $4.50 per barrel, encouraging extra flows throughout the Atlantic Ocean to increased priced markets and driving U.S. crude exports increased.

However the spike in flows could also be brief lived. Freight charges for shifting barrels from the U.S. Gulf Coast to northwest Europe have climbed roughly $1 from November to round $3.80 per barrel this month, in accordance with information from commodity pricing agency Argus.

The narrowing WTI/Brent unfold contributed to these increased freight charges that are getting used to cost shipments for late January arrival, in accordance with Sparta Commodities analyst Neil Crosby.

“We might count on extra restricted U.S. to Amsterdam-Rotterdam-Antwerp flows within the short-term to emerge,” Crosby mentioned.

The inclusion of WTI Midland crude within the dated Brent index has meant that the unfold between the 2 is more and more correlated to freight charges, as the worth of Dated Brent is ready by WTI Midland on many buying and selling days.

U.S. exports sure for Amsterdam-Rotterdam-Antwerp hit a report excessive of 771,000 barrels per day (bpd) in November, in accordance with information from ship tracker Kpler. WTI priced at a steeper low cost than $4 in opposition to Brent by way of most of October, in accordance with LSEG, when these cargoes would have been booked, making these transatlantic flows extra worthwhile.