NOTNew trends in U.S. crude trading could emerge, as oil demand recovers, but the effects of the Covid-19 pandemic on U.S. oil supply persist.
U.S. crude exports have risen sharply in recent years following the lifting of U.S. oil export restrictions in December 2015, largely on the back of rising U.S. tight oil production, which rose by 6, 1 million b/d between 2012 and the first quarter of 2020 to reach 8.3 million b/d. Shipments hit a record high of 3.5 million bpd in the first quarter of 2020, supported by expanded pipeline infrastructure that boosted crude flows to export terminals.
By contrast, US crude imports by sea have declined since 2010, falling by 5.0 million b/d between 2010 and the first quarter of 2020 to 2.5 million b/d. The decline in marine imports occurred amid rising domestic oil supply and land imports from Canada, which doubled between 2010 and the first quarter of 2020 to reach 4.0 million b/d.
As the first quarter of 2020 drew to a close, the fundamentals of the oil market changed significantly. The Covid-19 pandemic has caused an unprecedented destruction of global oil demand, as countries impose “lockdown” restrictions and economic activity declines. Global oil demand collapsed by 15.6 million b/d year-on-year in the second quarter, while global crude throughput fell by 11.4 mb/d year-on-year.
Meanwhile, in April, a flood of oil entered the market as the OPEC+ supply cuts ended, following failed talks in early March. Amid massive oversupply, crude oil prices crashed, leading price-sensitive U.S. shale operators to shut off supply. US production fell sharply, with tight oil supply falling from 2.3 million b/d in two months to 6.0 million b/d in May.
U.S. crude oil exports fell just 0.3 million b/d quarter-on-quarter in the second quarter, supported by lower domestic oil consumption and stockpiling in Asia. Shipments rebounded somewhat in the third quarter as global demand continued to recover and reduced US supply was quickly restored.
US maritime crude imports were initially boosted by the OPEC+ supply disruption. Discharges of cheap Saudi crude, loaded amid the price war between Saudi Arabia and Russia, rose in May and June. However, higher imports partly offset lower US supply to maintain high flows of crude into US storage, with high inventories subsequently suppressing imports in the third quarter.
Although US exports did not fall as much as expected during the early stages of the pandemic, growth in US crude exports is expected to remain limited and volumes could remain around the 3 million bpd mark until in 2021.
The projection of lower US crude supply beyond September 2020, due to reduced drilling activity, with US tight oil production declining by 0.3 million b/d in 2021, jeopardizes growth prospects for U.S. crude exports. Export growth also faces headwinds outside the United States from high global oil inventories, while the lingering “first wave” and emerging “second waves” in Covid-19-affected countries could prolong the economic contraction until 2021. or potential changes in the flows of Libyan, Venezuelan or Iranian crude.
However, there remain positive factors that could support a more optimistic outlook, including gradual and continued improvements in global oil demand. There is inherent upside risk, particularly due to the impact of a Covid-19 vaccine before the end of the first quarter of 2021, which could accelerate the pace of demand recovery. Meanwhile, high oil inventories in the United States, which may suppress output from U.S. refineries somewhat, could push more crude to export markets.
High inventories of US crude should keep US maritime imports under pressure in the short term. However, with the sharp decline in US crude inventories in August to return near the 5-year range, the outlook for increased marine crude shipments to the US is positive, with shipments having the potential to increase. increase by 0.7 million bpd in 2021.
Seaborne imports appear well positioned to benefit from an expected increase in the US crude deficit next year, as US oil demand continues to improve and US domestic oil supply declines. However, land shipments are expected to largely recover, although they remain constrained by pipeline infrastructure and subdued Canadian production growth, while further drawdowns on U.S. crude inventories could also be a headwind. to the growth of imports.
VLCCs should be supported next year by an increase in US imports of Middle Eastern crude as OPEC+ supply cuts ease, while Aframax demand should benefit from the increase US imports of crude from Latin America. Meanwhile, the Suezmaxes should benefit from firmer US imports of crude from the Middle East and Latin America.
Source: Integr8 Fuels