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Last Updated: March 6, 2020
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U.S. crude oil exports increased 45% to nearly 3 million b/d in 2019

U.S. crude oil exports averaged 2.98 million barrels per day (b/d) in 2019, an increase of 930,000 b/d (45%) from 2018 (Figure 1). The number of destinations for U.S. crude oil exports increased from 41 to 44, and Canada continued to receive the largest share (15%, or 459,000 b/d), followed by South Korea (14%, or 426,000 b/d). U.S. crude oil exports to China, the third-largest export destination in 2018, fell by nearly 100,000 b/d to average 133,000 b/d in 2019. Decreased U.S. crude oil exports to China were more than offset by increases to other destinations, resulting in shifting trade patterns. The growth in U.S. crude oil exports was driven by increasing U.S. crude oil production, expanding domestic infrastructure, and increased global demand for light, low-sulfur crude oils.

Figure 1. Annual U.S. crude oil exports (1920-2019)

Of the 15 top destinations for U.S. crude oil exports, 8 are in Asia and Oceania and 5 are in Europe. The eight destinations in Asia and Oceania represent 1.3 million b/d, or a 43% share of total U.S. crude oil exports in 2019, and the five destinations in Europe represent 779,000 b/d, or a 26% share (Figure 2).

Figure 2. 2019 U.S. crude oil export destinations

China dropped from the third-largest destination for U.S. crude oil exports in 2018 to the seventh-largest in 2019. In the summer of 2018, trade negotiations between the United States and China and unfavorable prices led China to reduce imports of U.S. crude oil, which continued into 2019. In the first-half of 2018, the United States exported 389,000 b/d of crude oil to China, which made China the largest destination for U.S. crude oil exports during that period. However, in the second half of 2018, the United States exported just 77,000 b/d on average of crude oil to China. In 2019, China received an average of 133,000 b/d of U.S. crude oil exports compared with 232,000 b/d in full-year 2018.

Although exports to China declined, U.S. crude oil exports to other destinations increased, most notably to South Korea, the Netherlands, and India. In 2019, U.S. exports of crude oil (Figure 3)

  • To South Korea rose from 242,000 b/d in 2018 to 426,000 b/d, an increase of 184,000 b/d (76%)
  • To the Netherlands more than doubled from 132,000 b/d in 2018 to 281,000 b/d, an increase of 149,000 b/d (113%)
  • To India increased by more than 100,000 b/d (69%)

Figure 3. Change in U.S. crude oil export destinations (2018-19)

Increased U.S. crude oil production, which rose 1.24 million b/d in 2019 (11%) over the previous year, allowed for greater volumes of U.S. crude oil exports. The increased production is mostly of light, sweet crude oils, but U.S. Gulf Coast refineries are complex and largely optimized to process heavy, sour crude oils. Higher crude oil production and a mismatch between crude oil type and refinery configuration increases the availability of U.S. crude oil production for exports.

Another factor enabling increased U.S. crude oil exports has been the completion of pipeline capacity from producing regions such as the Permian in West Texas to the U.S. Gulf Coast. According to the U.S. Energy Information Administration’s (EIA) liquids pipeline project database, about 2.8 million b/d of additional pipeline capacity was scheduled to be completed in 2019 in Texas alone.

In addition, the lead-up to the 2020 International Maritime Organization (IMO) marine fuel sulfur regulation likely contributed to increased demand for U.S. crude oil by global refineries, particularly in South Korea and the Netherlands. Increasing the amount of light, sweet crude oils that a refinery processes is one way to increase the production of IMO-compliant low-sulfur marine fuels and minimize the production of residual fuel oil. Although details on the exact gravity and sulfur content of U.S. crude oil exports is not collected in a way that allows specific grade distinctions by official U.S. Customs and Border Protection export forms (on which EIA exports data are based), most U.S. crude oil exports are likely light and low in sulfur content. This characteristic made U.S. crude oil exports attractive to many refiners as they prepared for IMO 2020 in the latter half of 2019.

U.S. average regular gasoline and diesel prices fall

The U.S. average regular gasoline retail price fell more than 4 cents from the previous week to $2.42 per gallon on March 2, less than one cent higher than a year ago. The Midwest price declined nearly 6 cents to $2.30 per gallon, the East Coast price declined nearly 5 cents to $2.35 per gallon, the Gulf Coast price fell nearly 4 cents to $2.11 per gallon, the Rocky Mountain price declined more than 2 cents to $2.42 per gallon, and the West Coast price fell nearly 1 cent to $3.13 per gallon.

The U.S. average diesel fuel price fell more than 3 cents from the previous week to $2.85 per gallon on March 2, 23 cents lower than a year ago. The West Coast price fell nearly 4 cents to $3.42 per gallon, the East Coast and Midwest prices each fell more than 3 cents to $2.90 per gallon and $2.73 per gallon, respectively, the Gulf Coast price fell nearly 3 cents to $2.63 per gallon, and the Rocky Mountain price fell more than 2 cents to $2.83 per gallon.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 3.6 million barrels last week to 70.0 million barrels as of February 28, 2020, 18.8 million barrels (36.7%) greater than the five-year (2015-19) average inventory levels for this same time of year. Gulf Coast inventories decreased by 1.6 million barrels, Midwest inventories decreased by 1.5 million barrels, and East Coast and Rocky Mountain/West Coast inventories each decreased by 0.3 million barrels. Propylene non-fuel-use inventories represented 7.7% of total propane/propylene inventories.

Residential heating fuel prices decrease

As of March 2, 2020, residential heating oil prices averaged more than $2.82 per gallon, nearly 7 cents per gallon below last week’s price and almost 41 cents per gallon lower than last year’s price at this time. Wholesale heating oil prices averaged nearly $1.61 per gallon, more than 18 cents per gallon below last week’s price and almost 53 cents per gallon lower than a year ago.

Residential propane prices averaged nearly $1.97 per gallon, more than 1 cent per gallon below last week’s price and more than 45 cents per gallon below last year’s price. Wholesale propane prices averaged nearly $0.57 per gallon, more than 3 cents per gallon lower than last week’s price and almost 26 cents per gallon below last year’s price.

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Saudi Aramco Moves Into Russia’s Backyard

International expansions for Saudi Aramco – the largest oil company in the world – are not uncommon. But up to this point, those expansions have followed a certain logic: to create entrenched demand for Saudi crude in the world’s largest consuming markets. But Saudi champion’s latest expansion move defies, or perhaps, changes that logic, as Aramco returns to Europe. And not just any part of Europe, but Eastern Europe – an area of the world dominated by Russia – as Saudi Aramco acquires downstream assets from Poland’s PKN Orlen and signs quite a significant crude supply deal. How is this important? Let us examine.

First, the deal itself and its history. As part of the current Polish government’s plan to strengthen its national ‘crown jewels’ in line with its more nationalistic stance, state energy firm PKN Orlen announced plans to purchase its fellow Polish rival (and also state-owned) Grupa Lotos. The outright purchase fell afoul of EU anti-competition rules, which meant that PKN Orlen had to divest some Lotos assets in order to win approval of the deal. Some of the Lotos assets – including 417 fuel stations – are being sold to Hungary’s MOL, which will also sign a long-term fuel supply agreement with PKN Orlen for the newly-acquired sites, while PKN Orlen will gain fuel retail assets in Hungary and Slovakia as part of the deal. But, more interestingly, PKN Orlen has chosen to sell a 30% stake in the Lotos Gdansk refinery in Poland (with a crude processing capacity of 210,000 bd) to Saudi Aramco, alongside a stake in a fuel logistic subsidiary and jet fuel joint venture supply arrangement between Lotos and BP. In return, PKN Orlen will also sign a long-term contract to purchase between 200,000-337,000 b/d of crude from Aramco, which is an addition to the current contract for 100,000 b/d of Saudi crude that already exists. At a maximum, that figure will cover more than half of Poland’s crude oil requirements, but PKN Orlen has also said that it plans to direct some of that new supply to several of its other refineries elsewhere in Lithuania and the Czech Republic.

For Saudi Aramco, this is very interesting. While Aramco has always been a presence in Europe as a major crude supplier, its expansion plans over the past decade have been focused elsewhere. In the US, where it acquired full ownership of the Motiva joint venture from Shell in 2017. In doing so, it acquired control of Port Arthur, the largest refinery in North America, and has been on a petrochemicals-focused expansion since. In Asia, where Aramco has been busy creating significant nodes for its crude – in China, in India and in Malaysia (to serve the Southeast Asia and facilitate trade). And at home, where the focus has on expanding refining and petrochemical capacity, and strengthen its natural gas position. So this expansion in Europe – a mature market with a low ceiling for growth, even in Eastern Europe, is interesting. Why Poland, and not East or southern Africa? The answer seems fairly obvious: Russia.

The current era of relatively peaceful cooperation between Saudi Arabia and Russia in the oil sphere is recent. Very recent. It was not too long ago that Saudi Arabia and Russia were locked in a crude price war, which had devastating consequences, and ultimately led to the détente through OPEC+ that presaged an unprecedented supply control deal. That was through necessity, as the world faced the far ranging impact of the Covid-19 pandemic. But remove that lens of cooperation, and Saudi Arabia and Russia are actual rivals. With the current supply easing strategy through OPEC+ gradually coming to an end, this could remove the need for the that club (by say 2H 2022). And with Russia not being part of OPEC itself – where Saudi Arabia is the kingpin – cooperation is no longer necessary once the world returns to normality.

So the Polish deal is canny. In a statement, Aramco stated that ‘the investments will widen (our) presence in the European downstream sector and further expand (our) crude imports into Poland, which aligns with PKN Orlen’s strategy of diversifying its energy supplies’. Which hints at the other geopolitical aspect in play. Europe’s major reliance on Russia for its crude and natural gas has been a minefield – see the recent price chaos in the European natural gas markets – and countries that were formally under the Soviet sphere of influence have been trying to wean themselves off reliance from a politically unpredictable neighbour. Poland’s current disillusion with EU membership (at least from the ruling party) are well-documented, but its entanglement with Russia is existential. The Cold War is not more than 30 years gone.

For Saudi Aramco, the move aligns with its desire to optimise export sales from its Red Sea-facing terminals Yanbu, Jeddah, Shuqaiq and Rabigh, which have closer access to Europe through the Suez Canal. It is for the same reason that Aramco’s trading subsidiary ATC recently signed a deal with German refiner/trader Klesch Group for a 3-year supply of 110,000 b/d crude. It would seem that Saudi Arabia is anticipating an eventual end to the OPEC+ era of cooperative and a return to rivalry. And in a rivalry, that means having to make power moves. The PKN Orlen deal is a power move, since it brings Aramco squarely in Russia’s backyard, directly displacing Russian market share. Not just in Poland, but in other markets as well. And with a geopolitical situation that is fragile – see the recent tensions about Russian military build-up at the Ukrainian borders – that plays into Aramco’s hands. European sales make up only a fraction of the daily flotilla of Saudi crude to enters international markets, but even though European consumption is in structural decline, there are still volumes required.

How will Russia react? Politically, it is on the backfoot, but its entrenched positions in Europe allows it to hold plenty of sway. European reservations about the Putin administration and climate change goals do not detract from commercial reality that Europe needs energy now. The debate of the Nord Stream 2 pipeline is proof of that. Russian crude freed up from being directed to Eastern Europe means a surplus to sell elsewhere. Which means that Russia will be looking at deals with other countries and refiners, possibly in markets with Aramco is dominant. That level of tension won’t be seen for a while – these deals takes months and years to complete – but we can certainly expect that agitation to be reflected in upcoming OPEC+ discussions. The club recently endorsed another expected 400,000 b/d of supply easing for January. Reading the tea leaves – of which the PKN Orlen is one – makes it sound like there will not be much more cooperation beyond April, once the supply deal is anticipated to end.

End of Article

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Market Outlook:

-       Crude price trading range: Brent – US$86-88/b, WTI – US$84-86/b

-       Crude oil benchmarks globally continue their gain streak for a fifth week, as the market bounces back from the lows seen in early December as the threat of the Omicron virus variant fades and signs point to tightening balances on strong consumption

-       This could set the stage for US$100/b oil by midyear – as predicted by several key analysts – as consumption rebounds ahead of summer travel and OPEC+ remains locked into its gradual consumption easing schedule 

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