US Petroleum Exports Move to Fill Russian Vacuum

US exports of crude and products are set to surge higher this month as the global market scrambles to offset the de facto loss of Russian supplies.

With arbitrage windows for US crude wide open and the country’s refining sector advantaged compared to most other regions, US crude and product export volumes are already forecast at 5.5 million barrels per day in March by tanker and logistics tracking firm Kpler — the highest volume since last December and up sharply from February.

Supplies and Logistics

The robust flows highlight not only the impact of Russian outages, which Energy Intelligence pegs at roughly 5 million b/d by the week’s end, but also developments on the domestic front.

US crude production is expected to climb, with the US Energy Information Administration (EIA) forecasting 2022 output at just over 12 million b/d. Meanwhile, the domestic downstream has shrunk, and heavy maintenance could put pressure on utilization throughout the year.

“Incremental production from the US should keep export volumes ticking over,” said Stephen Brennock of oil brokerage PVM, adding that recent pipeline completions could also displace more crude and make it available for export. “Shipments from the US will also be supported by rising volumes of Canadian barrels making their way to the US Gulf Coast following the recent completion of Enbridge's Line 3 replacement pipeline.”

The recently reversed Capline will also bring more Canadian crude to the Padd 3 area.

Much of the infrastructure needed to support high volumes of crude and product exports already exists along the US Gulf Coast. Since 2015, when former President Barack Obama lifted restrictions on US petroleum exports, companies have dramatically built out terminal and dock capacity.

Markets and Spreads

Headline crude differentials are practically screaming for more US barrels. The disruption of flows from Russia to Europe — perceived or tangible — has blown out the premium global benchmark Brent crude posts to West Texas Intermediate (WTI) futures on Nymex, with the front-month spread currently over $8.

However, that headline number is misleading. Nymex WTI is priced at Cushing, Oklahoma. Inventories at that hub are barely above minimum operating levels, so no matter how attractive the price structure becomes, those barrels cannot leave.

In addition, physical dated Brent trades considerably higher than its derivative futures contract on London’s ICE at around $127 per barrel.

Traders and brokers also say the global market tends to prefer WTI sourced directly from the wellhead rather than from Cushing, where it is often a blended barrel.

The Houston WTI price assessment is more relevant, a broker tells Energy Intelligence. Houston WTI currently trades some $8 below dated Brent and $14 below West African marker Bonny Light.

Kpler data show US crude and condensate exports at some 3.2 million b/d in March. Of that, roughly 44% is destined for the Asia-Pacific and 23% for Europe. However, several cargoes have yet to announce a destination, and in February exports to Europe accounted for almost 40% of total US crude shipments.

Products

Energy Intelligence estimates suggest Russia’s exports of refined products will drop 1.8 million b/d from prewar levels by the end of the week.

One key worry for the market is diesel, which Russia supplied to Europe. Nymex diesel futures have skyrocketed as traders and consumers eye potential shortages and look for alternative supplies, climbing by well over $1 per gallon since just before Russia’s invasion of Ukraine.

Kpler forecasts show US diesel shipments to Europe at 70,000 b/d in March, the highest volume since last June, and that number could climb much higher, particularly as high prices begin to undercut demand in other export markets.

“The high prices are beginning to have an impact on demand, especially in Latin America as [state] oil companies reduce the amount of product that they are willing to buy,” noted Andy Lipow of Lipow Oil Associates.