Demand for US crude may stall
Early September data suggests US crude exports have hit headwinds in Asian markets with some upside still expected from Europe
US seaborne crude exports have been on a roll since February 2023 with exports remaining above 3.5mbd since then and even surpassing record levels of 4.4mbd the very next month in March 2023, according to Vortexa data. But early indications for imports of US crude point to weaker Asian demand in September and changing European buying patterns, especially since the inclusion of WTI Midland into the Dated Brent assessment. All this means much stronger interest later during the month needs to materialize if full-month US exports are to rise in September.
Lack of Asian buying likely to impact September US crude exports
August was also a strong month with US crude exports coming in at 4.3mbd. What was different this time around in comparison to previous months was a shift in destination with increased buying from Asian buyers. This meant roughly equal quantities of US crude, around 1.9mbd, went to both Europe and Asia. Prior to August, this share was firmly in favor of exports to Europe since the start of the Russia-Ukraine conflict. Preliminary data for September (days 1-10) suggests lower exports mainly due to a lack of buying from Asia where competition from other grades in China and refinery turnarounds in India are keeping US barrels at bay for the time being.
Meanwhile, things are looking bright for some LatAm suppliers as OPEC+ supply cuts have kept their crude grades in demand. The only exception is Brazil’s lower crude exports since mid-August as Petrobras’ pricing policies on refined products led to increased domestic refinery runs, which in turn led to lower Brazilian crude exports and seems to have continued into September (days 1-10). The issue seems to have been resolved with Petrobras announcing a hike in refinery prices, incentivizing product imports and affecting refinery runs. This frees up crude for export and going forward crude exports should also see an increase as ANP has reported record high offshore crude production in the month of July.
New patterns observed in US crude flows to Europe
Vortexa data for September (days 1-10) shows lower imports of US crude into Europe mainly driven by the Netherlands, especially after record high imports in August. This is not surprising, as we have observed the emergence of a new trend in US seaborne crude exports since May this year. This is coinciding with the inclusion of WTI in the Dated Brent assessment.
Simply put, we observed a significant increase in crude exports, especially to Europe, in the second half of the month compared to the first half of the month. A potential reason is that the WTI trading window rolls into the next trading window around the 20th of each month, while the expiry of the Brent contract happens towards the end of the month. According to Argus, the inclusion of WTI into the Dated benchmark has moved the trading cycle for the grade to a more prompt period. Previously European refiners would buy cargoes delivered between one to two months ahead, but most deals are now done for cargoes delivered between 12 days to one month ahead which drives an increase in loading activity during the second of the month.
Diving further into this dataset revealed to us that for the months of June and July, almost 68% and 72% of US crude exports to Europe took place in the second half of each month, respectively. This seems to have changed somewhat in August (down to 55% exports in the second half) as some European countries outside ARA – led by Italy, France and Spain – imported more US crude more evenly throughout the month bringing this trend closer to normal levels. So far in September (days 1-10) only 300kbd of US barrels have arrived in the ARA region and we believe September full month volumes for US crude exports should come in higher than what we have seen so far this month, mainly driven by ARA as well as Spanish imports in the second half of the month.
