US oil exports surging, headed to Asia and Europe

Oil exports from the United States to European and Asian markets are rising, a trend that could put further pressure on the world market.

In its latest report, the US energy information agency (EIA) said that the country exported 401,000 barrels per day in July, the highest volume in 57 years and the second-highest monthly total since 1920, when the EIA first started publishing data.

It said also that exports had continued to rise and find new markets since then.

Rising crude production in the US has had a knock-on effect, particularly in the Atlantic Basin market, where it has displaced crude from sources including the Middle East and West Africa, which in turn have had to compete in Europe and Asia.

This has been the main supply-side factor behind a 30 per cent drop in world oil prices since midsummer.

The EIA also issued a report last week – the first in a planned series – setting out the case to further loosen the rules to make exporting crude from the US easier. Currently, there are tight rules allowing a limited amount of crude exporting, including re-exporting of non-domestic crude.

On the rising crude exports, the agency pointed out two noteworthy trends that could have further consequences for world markets if they continued. First, US oil exports have usually comprised domestic oil that is sold to Canada, but since April oil exports have been originating in Canada and have been re-exported from US ports in the Gulf of Mexico to Switzerland, Spain, Italy and Singapore.

Second, a recent shipment of Alaska North Slope crude to Asia was the first export of ANS in more than 10 years. That shipment was loaded in September and delivered to South Korea last month.

Whether the re-exporting of Canadian crude continues to rise depends on the future of pipeline projects, the EIA pointed out. One such pipeline – Enbridge’s Sarnia-to-Montreal Line 9 – offers no relief to international markets, as any crude not absorbed into local area refineries can be easily exported into the Atlantic Basin market through the St Lawrence Seaway.

Likewise, other proposed Canadian pipelines – both east or west, for export to Asia through British Columbia’s sea access – also would mostly end up heading to export markets. In any case, the pipelines face fierce resistance from environmentalists and others, so that Alberta oil is likely to continue to flow south to the US Gulf ports for re-export.

Meanwhile, the recent mothballing of the last unit of a refinery at Flint Hills in North Pole, Alaska, will send about 80,000 bpd of Alaska North Slope crude into export markets in Asia.

The EIA’s report on loosening rules for oil exports looked mainly at the effect on domestic gasoline prices, which has the biggest effect on consumers.

The report noted the international nature of crude oil and gasoline markets and how the arcane nature of world petroleum pricing meant that the effect on domestic gasoline prices of loosening export rules would depend on the effect on global prices, particularly benchmark North Sea Brent crude.

But the EIA also noted that refineries from both sides of the Atlantic are now competing more and more fiercely in the world gasoline market because of declining demand in the US and Europe. This has meant a big change in trade patterns, particularly increasing gasoline exports from the US Gulf coast, where prices “are now often the lowest in the world during the fall and winter months,” according to the EIA.

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