A decline in US crude inventories has narrowed the price discount of the US crude benchmark (WTI) versus the global crude benchmark (Brent) to its lowest level in more than a year.
Increasing volumes of US crude leaving from Gulf Coast ports to refineries abroad have drained inventories in Texas and Louisiana, and pulled barrels via pipeline from the Cushing, Oklahoma storage hub.
This trend should continue.
New pipelines coming online this year and next, along with Gulf Coast port expansions, will expand US export capacity.
You can already see the impact that higher exports are having on inventories.
Gulf Coast crude stocks have fallen sharply since May. Interestingly, those draws have been driven by tanks away from refineries. That’s indicative of the role that exports are playing, not refinery activity.
That’s particularly noteworthy coming in the summer as refineries run hard to satisfy the peak driving season.
Ursa measures global crude inventories weekly using synthetic aperture radar (SAR). This provides insight on places outside the United States where inventory statistics aren’t timely or considered accurate or even available.
For US inventories, we provide more granular data than the US Energy Information Administration (EIA) offers.
That includes the ability to filter on the type of storage, whether associated with a refinery or not.
Looking at Gulf Coast crude inventories (i.e. PADD 3), you can see non-refinery stocks have decreased since June, while refinery stocks have been little changed over the same period.
Source: Ursa
Source: Ursa
A key location in the Gulf Coast is the Louisiana Offshore Oil Port (LOOP), the only place in the US where a supertanker (VLCC) can fully load.
We recently covered the rise in LOOP exports responsible for inventory declines at that specific complex, which you can read about here.
In late May, the Brent/WTI spread was above $10/barrel, creating a price incentive to ship US crude abroad.
US crude exports rose by 260,000 barrels per day (bpd) in June to 3.16 million bpd, a record-high, according to the latest US Census Bureau.
Meanwhile, Gulf Coast refinery activity was consistent with seasonal norms, until mid-July, when utilization rates turned below-normal.
Source: Energy Information Administration (EIA)
The extra demand for Gulf Coast exports has been felt further away in Cushing, Oklahoma. Storage levels at the NYMEX crude delivery point have declined since mid-June.
After a long period of builds that began October 2018, the tide has shifted, with Cushing stocks down some 13.6% over the last seven weeks to 47.3 million barrels, levels last seen in early May, according to our latest measurements.
With Cushing tanks draining, the Brent/WTI spread began to narrow, settling August 5 at $5.23/b, the tightest it has been since July 30, 2018.
Source: ICE via MarketView
Another component behind the narrower Brent/WTI spread has been concerns over the global economy entering a recession, which would hurt oil demand.
That prospect has weakened Brent more so than WTI, further reducing the difference between the two benchmarks.
Longer term, a shift could be underway altering the dynamics of the global oil market.
A defining feature of the global oil market in recent memory was the relentless climb in US crude inventories that began late-2014 and peaked July 2017 at all-time highs.
You didn’t really need to look outside the US to know what was going on.
But the ability for US producers to export more oil means any supply glut might not materialize domestically, but materialize in storage tanks outside the US.
That increases the need for timely and accurate data on inventories around the world.
If you’re interested in a free evaluation of our oil storage data, please contact us here.
