2017 Nov 17

Surge in US crude oil exports pulls in VLCCs and Suezmaxes

United States crude oil exports have surged in recent weeks, climbing to 2.13M b/d in the week ending 27 October, which compares with 0.4M b/d in the same week last year. To service this rapidly expanding trade, our analysis of AIS vessel movements reveals that significant additional numbers of VLCCs and Suezmaxes have been pulled into the US Gulf region as well as other trades in the Americas (as shown in the chart below).

When Hurricane Harvey was ravaging Texas at the end of August, it would have been difficult to imagine new records being set for exports just a few weeks later, but while there was massive damage, United States production facilities escaped relatively unscathed, while most flood-affected ports and pipelines were brought back into operation relatively quickly. It is also the case that Harvey helped to precipitate the export surge because bottlenecks were created within the oil transportation network that have kept United States oil prices low compared to other benchmarks, such as Brent, and made United States crude more attractive to importers.

Including vessels working in shuttle trades, Suezmaxes outnumber VLCCs in the Americas markets (includes both North and South America) by around 2:1. However, the recent fleet migration has seen an increase of 30 VLCCs in the region since the end of August compared with 18 Suezmaxes. Many of the additional VLCCs have been destined for the US Gulf. Our analysis of AIS movements data, shows that, at the end of October, there were 16 vessels in the US Gulf (including 10 vessels offshore Houston) compared with just six in mid-August. A similar analysis for the Suezmax sector reveals 23 vessels at the end of October compared with just 11 in mid-August.

Long-haul trades have benefited the most from the surge in United States crude oil exports, with trade to China and South Korea leading the way. Exports to India have also started to take off, reaching almost 100,000 b/d in September, when total United States crude oil exports averaged 1.5M b/d. Europe has also been an important beneficiary of the increase in exports.

The influx of VLCCs and Suezmaxes into the region has not just been to service growing United States exports, but also to feed off a more general upwelling in exports from the Atlantic Basin region, which includes Brazil and Canada. VLCCs have been attracted to loading opportunities out of Brazil, which is targeting long-haul trades to Asia. A fleet distribution snapshot in mid-August shows just one VLCC in port in Brazil compared with six at the end of October.

Although United States exports fell back sharply in the week ending 3 November, in the same week United States oil production hit an all-time high of 9.62M b/d, surpassing the previous record of 9.61M b/d in the week ending 5 June 2015, and up from 8.95M b/d at the start of this year. With a further 600,000 b/d of United States shale production scheduled to come on stream by Q2 2018, it is reasonable to assume that United States exports will continue to provide a much needed source of employment for VLCCs and Suezmaxes for the foreseeable future.

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