Singapore Conducts Joint Spill Exercise

The global oil market is a strange place indeed and the surge in US crude production coupled with outdated regulations are creating counterintuitive trade dynamics. A majority of US crude imports come from Canada – 2.5 million barrels per day in September according to EIA data – but now the US also exports more crude back to its northern neighbor than it has for at least a decade.

US crude oil export restrictions limit the number of barrels companies can ship overseas – though products refined from crude oil face no such restriction – and firms must obtain special export permits. Companies, often traders, are reportedly securing these licenses at a record pace.

“The US government granted 103 licenses to ship crude oil abroad in its latest fiscal year, up by more than half from the 66 approved in fiscal 2012 and the highest since at least 2006, according to data obtained by the Financial Times…Exports to Canada totaled 99,000 b/d in September, the latest official data show. Physical traders estimate US crude exports to Canada are now approaching 200,000 b/d, the highest in more than a decade.”

Most of the exported US barrels go to Eastern Canada, where refiners primarily rely on importing crude with price linkage to global benchmark Brent. US Gulf Coast crude Light Louisiana Sweet currently trades at a discount to Brent, creating the economic incentive to source LLS over grades from West Africa or other locations with Brent-based prices.

“Jake Dweck, partner at the Sutherland Asbill & Brennan law firm, said: “Companies, particularly traders, often obtain licenses to make sure they have the option to act if the market opportunity arises. So some end up actually using their licenses while others just sit on them.”  FT