Recent attacks by Iran-backed Houthi rebels on vessels in the Red Sea have caused significant disruptions to transportation, particularly for oil and other goods. Thankfully, international oil shippers have found a way to navigate through this chaos.
Unexpected Rise in Gasoline and Distillate Supplies
A recent report from a government agency has revealed a surprising increase in gasoline and distillate supplies on a weekly basis. Unfortunately, this has resulted in losses for energy futures on Thursday.
Key Data Points to Weekly Surge in U.S. Petroleum Exports
Amidst these challenges, there is a noteworthy figure in the data that shouldn't be overlooked - a significant weekly surge in U.S. petroleum exports. According to the EIA, exports have climbed by 1.377 million barrels a day, reaching 5.292 million barrels a day by the week ending on December 29.
Houthi Attacks Prompt International Shippers to Rethink Routes
Robert Yawger, the executive director for energy futures at Mizuho Securities USA, has shed light on the possible reasons behind this surge. He suggests that the spike in U.S. exports is a direct response to the attacks by Houthi rebels in the Red Sea. International shippers, concerned about potential attacks on open waters, have started exploring alternative routes. Instead of navigating through the Red Sea, they are opting to detour around the Cape of Good Hope in South Africa.
Safer and More Cost-Effective Alternative: Loading Up on U.S. Oil Barrels
Yawger explains that sailing to the U.S. Gulf Coast and loading up on cheaper U.S. oil barrels has proven to be a safer and more cost-effective way to secure supply, especially for EU customers. This change in strategy reflects the concerns and precautions taken by international shippers in response to the attacks.
In summary, the attacks by Iran-backed Houthi rebels have disrupted vessel transport in the Red Sea. However, international oil shippers have adapted by increasing U.S. petroleum exports and choosing safer and more affordable routes to procure supply.
Crude Oil Prices and Geopolitical Tensions: An Opportunity for U.S. Shale Producers
The U.S. benchmark West Texas Intermediate crude (WTI) is currently trading at a discount compared to the global benchmark Brent crude. As of Thursday, the February WTI futures contract settled at $72.19 per barrel on the New York Mercantile Exchange, while March Brent settled at $77.59 on ICE Futures Europe. This represents a difference of $5.40 per barrel.
Interestingly, the chaos in the Middle East is leading international customers to turn to U.S. shale producers for their crude oil needs. According to Robert Yawger of Mizuho, this unexpected trend is driven by geopolitical tensions in the region. Yawger predicts that U.S. petroleum exports will continue to sustain their level above 5 million barrels per day in the coming weeks.
Despite the uncertainty in the Middle East, there is a shift towards U.S. shale producers. Yawger emphasizes that there is a good chance U.S. exports will break the all-time record in the coming weeks. However, he also notes that refiners may reduce their run rate in response to this potential surge in exports.
In fact, based on EIA data since February 1991, weekly U.S. crude oil exports reached a record high of 5.629 million barrels per day in the week ended February 24, 2023.
This situation presents a unique opportunity for U.S. shale producers to further establish themselves in the global crude oil market. Despite the geopolitical challenges faced by the industry, U.S. exports are expected to continue flourishing in the near future.