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The Force Awakens? US lifts 40-year ban on crude exports

The Force Awakens? US lifts 40-year ban on crude exports
The 40-year ban on crude oil exports from the United States has now been eliminated, as part of the $1.1trn bill, which fixes the US government’s budget through late 2016. Just prior to adjourning for their holiday break, the US Congress passed the bill, which was signed into law by President Obama.

Politics on Capitol Hill are impossibly complex; in a nutshell, the US oil producers - who lobbied hard to end the export prohibition - could claim victory, as could environmental interests - who sought a continued ban on oil exports but gained a lengthy extension on incentives for investments in renewal energy. The new Speaker of the House, Rep. Paul Ryan, who ran for Vice President alongside Mitt Romney, in 2012, also looked good; his promise to bring Democrats and Republicans together succeeded, in a big way.

Views on possible shipping market impacts are now emerging; with a feeling that US crude oil exports will be a positive for tanker trades over a period of time, though not instantly. When the oil producers began pushing for the change, two years ago, the spread of Brent (representing worldwide oil prices) over WTI (representing US prices) was steadily over $10 per higher for Brent, and the tanker boom had not started. Effectively, US producers – benefitting from the boom in shale oil, were shut out of a raging bull market in oil where prices exceeded $100/barrel. At present- in a sub $40 per barrel crude price environment, Brent’s premium over WTI has shrunk to circa $2 per barrel- severely reducing the incentives to export crude oil, and, indeed, leading to increased US imports.

Analyst Court Smith, from broker MJLF, emphasized the need to modify oil transport infrastructure for exports where around 500,000 barrels per day has been moving to Canada, writing: “Most of the exports originate from Houston, Corpus Christi, or St. James (La.). LOOP has broached the topic of reversing lines for export, however this would not occur until 2018.”

MJLF is ultimately looking for exports of 1.3 million bbl/day. Smith says: “Venezuela would be a natural export location of light grades, as would other Latin American countries. We view this as the most likely trade to develop, a USG-down aframax market of about 200-300 thousand barrels per day (bpd). Eastern buyers may take some volumes for strategic diversification. “

Poten’s analyst team, led by Erik Broekhuizen - perhaps writing after viewing the premier of the new Star Wars movie - took a very positive view. In a research piece titled: “The Force Awakens: US crude oil exports will change the oil and tanker market”.

Poten cites a September 2015 study by the US Department of Energy, which estimated that US crude oil exports could increase to around 1.5m bpd by 2020. On impacts for relative ship types, Poten says: “Once exports start flowing, aframax crude tankers will be the initial beneficiaries. If production continues to increase and pricing is favorable, suezmaxes and VLCCs may come into the mix (which would open up Asian markets). The impact on product carriers will depend very much on the relative competitiveness of the US Gulf refiners.”

Not everybody wins, however. Poten cited possible negatives looming for the US flag Jones Act tanker market. Its Jedi warriors/researchers wrote: “The lifting of the US crude oil export ban will probably be a net negative for the US Jones Act market. This market did receive a boost from the coastwise transportation of crude oil in the past, but these movements, which already declined significantly in 2015, may disappear altogether.”