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US crude exports fall on week; arbitrage to Europe under pressure

Weekly US crude exports averaged 2.62 million b/d of the week ended Feb. 5, down 866,000 b/d from the week prior, US Energy Information Administration data showed Feb. 10, as flows to Europe face steep competition from more competitive North Sea and West African barrels.

The four-week moving average of export volumes also fell, dropping 100,000 b/d to 2.93 million b/d, EIA data showed.

While US crude exports to Europe in the week averaged 993,000 b/d, up 170,000 b/d from the four-week moving average of 820,000 b/d, according to data from Kpler, one trader noted flows to the region face steep competition from North Sea and West African barrels.

Indeed, arbitrage for WTI MEH crude into Rotterdam against local Forties crude was shown as closed on Feb. 8, the most recent day of data, at a minus 61 cents/b incentive, according to the S&P Global Platts Crude Arbflow calculator. By comparison, the arbitrage for Nigeria’s Bonny Light crude into Rotterdam was shown as open at a $1.23/b incentive.

Furthermore, with US production slated to decline further in the first half of 2021, as declining production from legacy wells outpace production from new drilling, and as US Gulf Coast refinery runs continue to normalize, exports could face further pressure from stronger prices.

While Platts Analytics expects Permian production levels to end 2021 above the December 2020 average, the yearly average output is expected to be 200,000 b/d lower than 2020, with production hitting the bottom of the trough mid-2021 before recovering in the back half of the year.

This expectation of falling production coupled with refinery utilization on the US Gulf Coast continuing to normalize could strengthen values for crudes on the US Gulf Coast, adding further pressure to arbitrage opportunities.

Refinery utilization increased 1% in the week ended Feb. 10 to 85.3%, the highest level since 88.6% in the week ended March 27, 2020, according to EIA data.

Platts Analytics expects US crude exports to “compress” during the first half of 2021 amid falling production, drawing inventories and rising refinery runs, but still average around 2 million-2.5 million b/d.
Source: Platts

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