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US crude and fuel exports reaching new highs

WTI's persistent discount to Brent has drawn record levels of American oil onto international markets

American producers and refiners are throwing their weight around international oil markets. Continental Resources announced this week that it had reached a deal to sell 1m barrels of light oil produced in the Bakken to customers in China in November, the latest sign of US crude's growing presence around the world.

US crude exports surged over the first ten and a half months of this year, and especially in recent weeks. Oil exports have averaged 0.85m barrels a day through mid-October this year, compared to 481,000 in 2016. The pace of exports has been supercharged over the past four weeks, averaging 1.6m b/d, easily the briskest period for US oil exports ever.

Hurricane Harvey wrought havoc on the Gulf Coast's oil infrastructure, leading to a blowout in the WTI-Brent spread to $6 a barrel. However, even as oil operations have returned to normal the spread has not retraced to pre-storm levels, when the two leading oil benchmarks traded within a dollar or two of each other.

America first?

Harold Hamm, the outspoken owner of Continental Resources, has railed against the spread, which is effectively a tax on producers earning WTI prices, that has encouraged more US oil to flow to international markets. "The current $6 discount to Brent should not exist, given the consistency and high quality of WTI, as well as relative shipping costs," he said.

Last month, Hamm laid the blame for the price discount, and the broader lack of an oil-price recovery, on what he said were overly-rosy US production forecasts from the US government's Energy Information Administration. Hamm told Bloomberg he thinks the EIA overshot its production growth forecast for this year by 0.5m b/d. The threat of a swift return of US shale barrels has helped keep prices below $60/b, and kept US oil closer to $50/b. "Talk about America first, when you have a $6 a barrel discount, that's not putting America first, that's putting America last," Hamm said.

WTI-Brent price spread (source: EIA)

Time will tell whether the EIA or Hamm is the better market prognosticator, but so long as the WTI discount remains, US oil exports will continue at their recent hot pace, likely helping draw down American inventories.

US fuel products have also seen record exports this year, thanks to refiners processing record amounts of crude and a surge in demand from Mexico and other Latin American countries for diesel and gasoline. Diesel exports were up 14% in the first half of the year compared to the same time last year, and gasoline exports jumped 17%. Of the 685,000 b/d of gasoline exported through July, 54% has gone to Mexico. State-run Pemex has struggled with a series of refinery problems, mostly resulting from underinvestment, that have brought its utilisation rate to less than 60%, forcing it to turn to imports to meet demand. The US' Gulf Coast refiners have been happy to plug the gap.

US oil exports m b/d (Source: EIA)
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