US Crude Oil Exports to Northwest Europe Set to Decline
The surge in US crude oil exports to northwest Europe is expected to slow down early next year, as the economic incentive for transatlantic shipments dwindles. Analysts point to the narrowing spread between US West Texas Intermediate (WTI) crude and Brent futures, which has made it less profitable to ship barrels across the Atlantic.
A Shift in Global Oil Dynamics
The WTI/Brent spread has narrowed to a discount of around $3.40 per barrel, the smallest closing spread since October 2023. This shift in global oil dynamics is attributed to the decline in US crude inventories, particularly at the key storage hub in Cushing, Oklahoma, which has dropped to 23 million barrels, its lowest mid-December level in 17 years.
Freight Rates on the Rise
Freight rates for moving barrels from the US Gulf Coast to northwest Europe have climbed roughly $1 from November to around $3.80 per barrel this month, according to data from commodity pricing firm Argus. This increase in freight rates is being used to price shipments for late January arrival, making it even less economic to ship US crude to Europe.
A New Era for US Crude Exports
The inclusion of WTI Midland crude in the dated Brent index has meant that the spread between the two is increasingly correlated to freight rates. As a result, analysts expect more limited US to Amsterdam-Rotterdam-Antwerp flows in the short-term. This marks a significant shift from November, when US exports bound for Amsterdam-Rotterdam-Antwerp hit a record high of 771,000 barrels per day (bpd).
What’s Behind the Shift?
The decline in US crude inventories means that barrels are being priced to stay at home. Additionally, the narrowing WTI/Brent spread has made it less profitable to ship US crude to Europe. As Bob Yawger, director of energy futures at Mizuho, notes, “A discount of $4, in my opinion, is always the line in the sand between a big export number versus a small export number.”
The Future of US Crude Exports
As the global oil market continues to evolve, it remains to be seen how US crude exports will adapt to these changing dynamics. One thing is certain, however: the surge in US crude oil exports to northwest Europe is set to slow down early next year.
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