Crude oil exports reached 5.6 Mb/d last week, the second-highest level in EIA statistics. Exports for the first six months of the year have averaged 4.1 Mb/d, 28% — or nearly 1 Mb/d — higher than the same period in 2022. And with Midland WTI crude now deliverable in the world benchmark Brent, there are even more exports. on the way. Which makes it increasingly important to understand how the physical price of crude oil is set at Gulf Coast export terminals. After all, exporters only take crude off the dock when they can make money doing it, well, at least most of the time. And that depends on how much it costs to bring a certain quality of crude to the dock, what it’s worth when it gets there, the cost of shipping it to overseas destinations, and the price realized when the cargo lands there. To shed more light on this export economy, in today’s RBN blog, we continue our exploration of crude oil prices in the US and Canadian physical crude markets.
For one of the best examples of crude oil price fundamentals analysis we can pick, we go straight to the epicenter of US crude exports: Corpus Christi, the source of 59% of US crude exports in the so far this year, surpassing the total exports of Houston (24%), Beaumont/Nederland (6%) and Louisiana (11%). You might think that exports out of Corpus are so high, partly because the barrels are cheaper than those from other terminals on the coast, but this is not the case. As shown in Figure 1, Corpus barrels averaged $0.17/bbl over Houston benchmark Magellan East Houston (MEH) last year (left side of the red line in the left chart ), and this premium has moved up to $0.26/bbl in the first six months. of 2023 (right side of the red line). In fact, the chart to the right shows that on a daily basis, the spread has widened even further over the past two months, to an average of $0.29/bbl last week.
The strength of Corpus barrels can be attributed mainly to two factors. The first is quality, or rather, the perception of quality. (We’ve recently been covering quality issues in O captain, mercaptan! i iron man.) That’s because, as we covered Trade in the USA, most of the pipeline crude reaching Corpus for export is via Plains-operated Cactus, Enbridge-operated Gray Oak and the EPIC Crude system, all of which offer direct shots from Permian docks to the Corpus area. In contrast, Houston WTI has traditionally been more likely to be mixed with crude from other regions, as Permian crude is staged in storage connected to multiple pipelines before delivery to docks for export. Second, Corpus Ingleside wharves, the source of most export growth over the past three years, can partially load VLCCs, providing significant freight savings per bbl to Asia and Europe (see I need you). Together, quality and shipping economic issues create a strong pull in demand for Corpus barrels. And it is this demand that drives the differential price premium of Corpus compared to MEH. In fact, the short-term behavior of the Corpus spread can be an effective indicator of export cargo volumes.
