U.S. Crude Exports Down – Blame the Brent-WTI Differential

There’s a lot going on in North American crude oil markets these days. Exports are running strong. Midland WTI is now deliverable into Brent (but only if it meets specs). Pipelines from the Permian to Corpus Christi are maxed out, pushing incremental production to Houston. The price differential between WTI at Midland and Houston is nearing zero. And the value of heavy Western Canadian Select (WCS) delivered to the U.S. continues to bounce all over the place. Are these unrelated, random events in the quirky U.S. physical crude market, or are they logical developments linked by the economics of refinery preferences, quality shifts, export demand, and logistics? As you might expect, we think it’s the latter. Believe it or not, crude markets sometimes do behave rationally — and, from time to time, even predictably. That’s what we explore in today’s RBN blog.

Crude oil inventories at Cushing have been in a free fall. After last peaking at more than 69 MMbbl in April 2017, stockpiles have decreased to less than 22 MMbbl recently, nearing all-time lows for tank utilization at the Oklahoma crude-trading hub. While we’ve seen volumes drop quickly in the past, inventories have now declined for 12 straight weeks at a staggering pace. Traders, refiners, and other market participants are starting to fret. Is this just another cyclical trend or are market factors exacerbating the impact? Today, we examine the influence of historical pricing trends on Cushing inventories and why it seems that demand factors are speeding up the drop.

Crude oil exports hit 5.6 MMb/d last week, the second-highest level in EIA stats ever. Exports in the first six months of the year have averaged 4.1 MMb/d, 28% — or nearly 1 MMb/d — higher than the same period in 2022. And with Midland WTI crude now deliverable into global benchmark Brent, even more exports are on the way. Which makes it ever more important to understand how physical spot crude oil is priced at Gulf Coast export terminals.  After all, exporters only move crude off the dock when they can make money doing so — well, at least most of the time. And that depends on what it costs to get a given crude grade to the dock, what it’s worth when it gets there, the cost of shipping to overseas destinations, and the price realized when the cargo lands there. To shed more light on those export economics, in today’s RBN blog, we continue our exploration of crude oil pricing in the markets for physical U.S. and Canadian crudes.