U.S. Gulf Coast crude oil imports averaged 1.8 million barrels per day (b/d) in March 2019, the lowest level since March 1986 and significantly lower than the peak of 6.6 million b/d in March 2007. Preliminary weekly data indicate that Gulf Coast crude oil imports have averaged about 1.9 million b/d through April and May (Figure 1). Falling crude oil imports into the U.S. Gulf Coast so far in 2019 are the result of both recent events and continuing longer-term trends. Recently, sanctions on Venezuelan imports and heavy refinery maintenance have reduced imports. At the same time, imports to the Gulf Coast have also decreased because of sharp declines in imports from the Organization of the Petroleum Exporting Countries (OPEC) following an agreement among members to reduce production and because imports are being replaced by increased production of domestic crude oil. Together, these trends have fundamentally changed how the Gulf Coast region is supplied with crude oil. In the past five consecutive months, the U.S. Gulf Coast has exported more crude oil than it imported (net exports), and since 2015, it has consistently received more crude oil from other regions of the United States than it has sent to other regions (net receipts).
Gulf Coast crude oil imports are typically lower in the early months of the year as refineries reduce runs as part of their seasonal maintenance. This year, planned maintenance activity was higher than usual. The four-week average of gross refinery inputs in the Gulf Coast fell from 9.6 million b/d for the week ending January 4, higher than the five-year (2014-18) maximum and 648,000 b/d higher than the five-year average, to a low of about 8.6 million b/d from mid-February until mid-April. Although 8.6 million b/d of gross refinery inputs is more than the Gulf Coast’s five-year average level for the period, eight consecutive weeks of relatively flat refinery runs is longer than normal during refinery maintenance at this time of year. This extended period of lower refinery runs for longer in the early months of 2019 reduced the need for crude oil imports, contributing to the more-than-three-decade-low crude oil imports during this period.
Around the same time, the U.S. government announced additional sanctions on Venezuela that included limitations on crude oil imports from Venezuela. In 2018, 20% of all Gulf Coast crude oil imports were from Venezuela, an annual average of 498,000 b/d. The Gulf Coast was the destination for 98% of all U.S. imports of Venezuelan crude oil in 2018. Because of the imposition of sanctions, refiners in the Gulf Coast sharply reduced imports of Venezuelan crude oil. Between January and March 2019, Gulf Coast imports of crude oil from Venezuela fell by 498,000 b/d to 47,000 b/d in March. As a result of the Gulf Coast reductions, U.S. four-week average imports from Venezuela fell from 603,000 b/d for the week ending January 25 to 12,000 b/d for the week ending May 31 (Figure 2).
An additional change in Gulf Coast crude oil imports occurred following a November 2016 agreement by OPEC members to cut crude oil production. As a result of the production cuts, many OPEC members reduced exports to the United States in favor of growing markets in Asia. One year after the production-cut agreement, crude oil imports from OPEC processed at Gulf Coast refineries had fallen 562,000 b/d from 2.1 million b/d in November 2016 to 1.5 million b/d in November 2017. Imports of crude oil from OPEC members into the Gulf Coast continued to decline, falling to 1.4 million b/d in 2018 and down to 513,000 b/d in March 2019 (Figure 3).
Before the OPEC production cuts in 2016, the Gulf Coast had already started reducing crude oil imports because of rising domestic production and changes in domestic crude oil pipeline infrastructure. Gulf Coast crude oil production increased from 2.7 million b/d in 2008 to 7.9 million b/d in March 2019. Much of this increased crude oil production was of light sweet crude oil that allowed Gulf Coast refineries to reduce imports of light sweet crude oil from foreign sources. Then pipeline infrastructure that once took imported crude oil from the Gulf Coast and delivered it to other regions of the United States was reversed, instead delivering increased domestic crude oil production and imports from Canada to Gulf Coast refineries. By 2015, this reversal meant that the Gulf Coast changed from being a net shipper of crude oil to other U.S. regions to being a net recipient. More recently, as imports have declined and crude oil exports have expanded, the Gulf Coast actually exported more crude oil than it imported for five consecutive months (Figure 4).
Because of all these changes combined, foreign-sourced crude oil receipts at Gulf Coast refineries accounted for an average of 36% of Gulf Coast refinery crude oil inputs in 2018, compared with 73% in 2008. The sources of those imports have also changed, with Canada and Mexico accounting for 54% of all imported crude oil processed in Gulf Coast refineries in March, representing a new high.
U.S. average regular gasoline and diesel prices fall
The U.S. average regular gasoline retail price fell nearly 2 cents from the previous week to $2.81 per gallon on June 3, more than 13 cents lower than the same time last year. The Gulf Coast price fell nearly 5 cents to $2.42 per gallon, the West Coast price fell nearly 4 cents to $3.60 per gallon, and the East Coast price fell more than 3 cents to $2.66 per gallon. The Midwest price rose more than 3 cents to $2.75 per gallon and the Rocky Mountain price increased slightly, remaining at $2.98 per gallon.
The U.S. average diesel fuel price fell nearly 2 cents to $3.14 per gallon on June 3, nearly 15 cents lower than a year ago. The West Coast price fell more than 2 cents to $3.76 per gallon, the Rocky Mountain and Gulf Coast prices each fell nearly 2 cents to $3.16 per gallon and $2.88 per gallon, respectively, and the Midwest and East Coast prices each fell over 1 cent to $3.03 per gallon and $3.15 per gallon, respectively.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 2.5 million barrels last week to 68.3 million barrels as of May 31, 2019, 9.1 million barrels (15.4%) greater than the five-year (2014-2018) average inventory levels for this same time of year. Gulf Coast inventories increased by 1.2 million barrels, and Midwest and East Coast inventories each increased by 0.7 million barrels. Rocky Mountain/West Coast inventories decreased slightly, remaining virtually unchanged. Propylene non-fuel-use inventories represented 7.2% of total propane/propylene inventories.
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U.S. crude oil production in the U.S. Federal Gulf of Mexico (GOM) averaged 1.8 million barrels per day (b/d) in 2018, setting a new annual record. The U.S. Energy Information Administration (EIA) expects oil production in the GOM to set new production records in 2019 and in 2020, even after accounting for shut-ins related to Hurricane Barry in July 2019 and including forecasted adjustments for hurricane-related shut-ins for the remainder of 2019 and for 2020.
Based on EIA’s latest Short-Term Energy Outlook’s (STEO) expected production levels at new and existing fields, annual crude oil production in the GOM will increase to an average of 1.9 million b/d in 2019 and 2.0 million b/d in 2020. However, even with this level of growth, projected GOM crude oil production will account for a smaller share of the U.S. total. EIA expects the GOM to account for 15% of total U.S. crude oil production in 2019 and in 2020, compared with 23% of total U.S. crude oil production in 2011, as onshore production growth continues to outpace offshore production growth.
In 2019, crude oil production in the GOM fell from 1.9 million b/d in June to 1.6 million b/d in July because some production platforms were evacuated in anticipation of Hurricane Barry. This disruption was resolved relatively quickly, and no disruptions caused by Hurricane Barry remain. Although final data are not yet available, EIA estimates GOM crude oil production reached 2.0 million b/d in August 2019.
Producers expect eight new projects to come online in 2019 and four more in 2020. EIA expects these projects to contribute about 44,000 b/d in 2019 and about 190,000 b/d in 2020 as projects ramp up production. Uncertainties in oil markets affect long-term planning and operations in the GOM, and the timelines of future projects may change accordingly.
Source: Rystad Energy
Because of the amount of time needed to discover and develop large offshore projects, oil production in the GOM is less sensitive to short-term oil price movements than onshore production in the Lower 48 states. In 2015 and early 2016, decreasing profit margins and reduced expectations for a quick oil price recovery prompted many GOM operators to reconsider future exploration spending and to restructure or delay drilling rig contracts, causing average monthly rig counts to decline through 2018.
Crude oil price increases in 2017 and 2018 relative to lows in 2015 and 2016 have not yet had a significant effect on operations in the GOM, but they have the potential to contribute to increasing rig counts and field discoveries in the coming years. Unlike onshore operations, falling rig counts do not affect current production levels, but instead they affect the discovery of future fields and the start-up of new projects.
Source: U.S. Energy Information Administration, Monthly Refinery Report
The API gravity of crude oil input to U.S. refineries has generally increased, or gotten lighter, since 2011 because of changes in domestic production and imports. Regionally, refinery crude slates—or the mix of crude oil grades that a refinery is processing—have become lighter in the East Coast, Gulf Coast, and West Coast regions, and they have become slightly heavier in the Midwest and Rocky Mountain regions.
API gravity is measured as the inverse of the density of a petroleum liquid relative to water. The higher the API gravity, the lower the density of the petroleum liquid, so light oils have high API gravities. Crude oil with an API gravity greater than 38 degrees is generally considered light crude oil; crude oil with an API gravity of 22 degrees or below is considered heavy crude oil.
The crude slate processed in refineries situated along the Gulf Coast—the region with the most refining capacity in the United States—has had the largest increase in API gravity, increasing from an average of 30.0 degrees in 2011 to an average of 32.6 degrees in 2018. The West Coast had the heaviest crude slate in 2018 at 28.2 degrees, and the East Coast had the lightest of the three regions at 34.8 degrees.
Production of increasingly lighter crude oil in the United States has contributed to the overall lightening of the crude oil slate for U.S. refiners. The fastest-growing category of domestic production has been crude oil with an API gravity greater than 40 degrees, according to data in the U.S. Energy Information Administration’s (EIA) Monthly Crude Oil and Natural Gas Production Report.
Since 2015, when EIA began collecting crude oil production data by API gravity, light crude oil production in the Lower 48 states has grown from an annual average of 4.6 million barrels per day (b/d) to 6.4 million b/d in the first seven months of 2019.
Source: U.S. Energy Information Administration, Monthly Crude Oil and Natural Gas Production Report
When setting crude oil slates, refiners consider logistical constraints and the cost of transportation, as well as their unique refinery configuration. For example, nearly all (more than 99% in 2018) crude oil imports to the Midwest and the Rocky Mountain regions come from Canada because of geographic proximity and existing pipeline and rail infrastructure between these regions.
Crude oil imports from Canada, which consist of mostly heavy crude oil, have increased by 67% since 2011 because of increased Canadian production. Crude oil imports from Canada have accounted for a greater share of refinery inputs in the Midwest and Rocky Mountain regions, leading to heavier refinery crude slates in these regions.
By comparison, crude oil production in Texas tends to be lighter: Texas accounted for half of crude oil production above 40 degrees API in the United States in 2018. The share of domestic crude oil in the Gulf Coast refinery crude oil slate increased from 36% in 2011 to 70% in 2018. As a result, the change in the average API gravity of crude oil processed in refineries in the Gulf Coast region was the largest increase among all regions in the United States during that period.
East Coast refineries have three ways to receive crude oil shipments, depending on which are more economical: by rail from the Midwest, by coastwise-compliant (Jones Act) tankers from the Gulf Coast, or by importing. From 2011 to 2018, the share of imported crude oil in the East Coast region decreased from 95% to 81% as the share of domestic crude oil inputs increased. Conversely, the share of imported crude oil at West Coast refineries increased from 46% in 2011 to 51% in 2018.
Headline crude prices for the week beginning 7 October 2019 – Brent: US$58/b; WTI: US$52/b
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