Where Are US Crude Oil Exports Going?

For 40 years the USA’s oil industry was banned from exporting crude. Now, the sanction has been lifted and markets are free to flow. So where are American producers sending their oil? Canada is currently the primary consumer of US crude, though analysts are forecasting that the US will soon turn its attention to heavy producers such as Venezuela and Mexico. As the US produces a ‘lighter’ product its exports are in high demand. This trend is already materialising, with Venezuela importing light West African oil to blend with its ultra-heavy grade product.

The US starts to tap international markets

Interestingly, foreign sales of US oil have remained slow since the beginning of 2016. This is despite the fact that the newly lifted ban left markets wide open. Why? In the wake of the oil price crash the gap between global contracts and US prices shrunk to a point where international sales were no longer economical. However, the landscape is slowly changing, with the gap widening significantly over the past few months. According to the latest statistics from Genscape almost five million barrels of crude have hit the US Gulf since mid-March, destined for countries such as the UK, France, Spain, Japan and the Netherlands.

Houston-based pipeline group Enterprise Products Partners LP was one of the first companies to take advantage of newly available markets, loading a 600,000-barrel cargo of domestic light crude oil earlier in the year.

"We are excited to announce our first contract to export U.S. crude oil, which to our knowledge may be the first export cargo of U.S. crude oil from the Gulf Coast in almost 40 years," said A.J. "Jim" Teague, chief operating officer of Enterprise.

Could exports cannibalise the US oil industry?

Some analysts are confident that international exports will strengthen the US oil industry, yet others are concerned. RBC Capital Markets’ commodities strategist Michael Tran maintains that the lifting of the ban could backfire, especially in the short term.

“The implications of increased crude exports to Mexico come at the expense of US gasoline exports. Roughly half of the 450 kb/d of gasoline that the US currently exports go to Mexico. Importing light crudes from the US means that Mexico will be able to increase its gasoline yield at domestic refineries and, at least partially, wean itself off of US gasoline. In other words, US crude exports to Mexico effectively cannibalise US gasoline exports,” he says.

Whether kept on US soil or exported to foreign buyers, American oil producers continually face operational challenges. ‘Oil flow assurance issues: tetraacids in deposits and crude oils’ explores the complexities of calcium naphthenate deposition, a process that sees the deposit dry on contact with air to form hard sediments. Build-up in topside equipment can lead to costly production losses, and on-site safety issues.