U.S. crude oil exports to receive a timely boost

Growing energy security meaningfully changes the landscape of oil trading. And the U.S., without a shadow of a doubt, is a more secure place from the energy supply point of view than 10 years ago. Latest full year data from the EIA confirms this view. Total U.S. crude oil and refined product exports averaged an all-time high of 9.57 mbpd in 2022. When a combined 8.32 mbpd of gross imports are set against this figure, it is blatantly obvious that the U.S. dependency on foreign oil has shrunk considerably. Within that figure, crude oil exports averaged a record 3.6 mbpd last year, an annual growth of 21%. In fact, the U.S. has been sending a growing volume of crude oil abroad ever since the export ban was lifted at the end of 2015. The emergence of the shale industry is the main reason behind the revival of the crude oil export machine. Given that domestic production (up 629,000 bpd or 5.6% in 2022) is set to stay resilient crude oil exports should remain at an elevated level.

Alongside the surge in export volumes the change in trading flows is conspicuous. South Korea, the Netherlands, the UK, and Canada were the main targets of U.S. crude oil exporters. The annual growth is especially profound in Europe where buyers acquired 41% more U.S. crude oil in 2022 than the year before due to diminishing availability of Russian barrels. U.S. exports to the region reached 1.4 mbpd last year. The UK and the Netherlands purchased more oil than China and India.

The share of U.S. crude oil exports to Europe rose from 35% to 41% year-on-year; the EIA estimates that the trend is widely expected to continue as the European crude oil marker, Brent, undergoes a significant makeover. In order to provide liquidity in the face of falling North Sea production pricing agency S&P Global Platts decided to include WTI Midland in the Dated Brent benchmark as well as in the forward Brent (BFOE) contract from June 2023. In addition to keeping European demand for U.S. crude oil healthy, the expansion of the crude oil marker will provide liquidity to the CME Group crude oil futures contract, will potentially help narrow WTI’s discount to Brent and will result in a material increase in the WTI futures positions of both producers and money managers.

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