By Georgina McCartney, Arathy Somasekhar and Enes Tunagur
HOUSTON/LONDON (Reuters) – U.S. crude oil exports to northwest Europe are likely to decline early next year after hitting a record high in November as transatlantic arbitrage has closed and freight rates have risen, analysts said. week.
The spread between U.S. West Texas Intermediate (WTI) crude and futures has narrowed to a discount of around $3.40 per barrel over the past few sessions, closing Wednesday at its narrowest since October 2023 at minus $3.37 per barrel. A smaller spread makes it less economical to ship barrels from the US across the Atlantic. The spread last traded at -$3.44 per barrel during Friday’s session.
“A four dollar rebate, in my opinion, is always the dividing line between a large export figure and a small export figure,” said Bob Yawger, director of Energy Futures at Mizuho (NYSE:).
The tighter spread is because freight prices have risen and inventories in the US have fallen.
Crude inventories at the main storage center in Cushing, Oklahoma, have fallen to 23 million barrels, the lowest level in mid-December in 17 years.
The drop in inventories means US barrels are priced to stay at home.
By late November, the WTI/Brent spread had widened to roughly $4.50 a barrel, fueling more flows across the Atlantic to higher-priced markets and boosting exports.
But the peak in flows may be short-lived. Freight rates for moving barrels from the U.S. Gulf Coast to northwestern Europe rose about $1 from November to about $3.80 a barrel this month, according to data from commodity pricing firm Argus.
According to Sparta Commodities analyst Neil Crosby, the narrowing WTI/Brent spread has contributed to the higher freight rates used to price shipments for arrival in late January.
“We expect to see more limited flows from the US to Amsterdam-Rotterdam-Antwerp in the near term,” Crosby said.
The inclusion of WTI Midland crude in the Dated Brent index has meant that the spread between the two is increasingly correlated with freight rates, as the price of Dated Brent is determined by WTI Midland on many trading days.
US exports bound for Amsterdam-Rotterdam-Antwerp reached a record high of 771,000 barrels per day (bpd) in November, according to data from ship tracker Kpler. According to LSEG, WTI was at a discount of more than $4 to Brent through most of October when those freights would have been booked, making those transatlantic flows more profitable.
