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.
For one of the best examples of crude price fundamentals analytics we can pick, let’s jump straight to the epicenter of U.S. crude exports: Corpus Christi, the source for 59% of U.S. crude exports so far this year, exceeding the total exports from Houston (24%), Beaumont/Nederland (6%) and Louisiana (11%). You might think that exports out of Corpus are so high in part because barrels there are cheaper than those at other terminals up the coast, but not so. As shown in Figure 1, Corpus barrels averaged $0.17/bbl over the Houston benchmark Magellan East Houston (MEH) last year (left side of red line in left graph), and that premium has moved up to $0.26/bbl in the first six months of 2023 (right side of red line). In fact, the right graph shows that on a daily basis, the differential has moved even higher over the past two months, to average $0.29/bbl last week.
The strength of Corpus barrels can be attributed primarily to two factors. The first is quality, or better said, perception of quality. (We’ve been covering quality issues recently in O Captain, Mercaptan! and Iron Man.) That’s because, as we covered in Trading in the USA, most of the pipeline crude coming into Corpus for export is via Plains-operated Cactus, Enbridge-operated Gray Oak, and the EPIC Crude system, all of which offer straight shots from the Permian to Corpus-area docks. In contrast, Houston WTI has traditionally been more likely to be blended with crudes from other regions since Permian crude is staged in multi-pipeline-connected storage before delivery to docks for export. Second, the Corpus Ingleside docks, the source of most of the export growth over the past three years, can partially load VLCCs, providing significant per-bbl freight savings to Asia and Europe (see I Need You). Together the quality and shipping economics issues create a strong demand pull for Corpus barrels. And it is that demand that drives the Corpus price differential premium versus MEH. In fact, the short-term behavior of the Corpus differential can be an effective leading indicator of export cargo volumes.
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