U.S. Crude Oil Export Outlook for Northwest Europe

By Georgina McCartney, Arathy Somasekhar and Enes Tunagur

HOUSTON/LONDON (Reuters) – U.S. crude oil exports to northwest Europe are projected to decrease in early 2024 after reaching a record high in November. Analysts believe this is due to the closure of arbitrage opportunities for transatlantic shipments and rising freight rates.

The spread between U.S. West Texas Intermediate (WTI) crude and Brent futures has contracted to around $3.40 per barrel over the past two sessions, marking the smallest closing spread since October 2023. A tighter spread results in reduced economic viability for shipping U.S. barrels across the Atlantic.

Bob Yawger, director of energy futures at Mizuho, stated, "A discount of $4, in my opinion, is always the line in the sand between a big export number versus a small export number."

The narrowing spread coincides with increased freight rates and declining inventories in the U.S., particularly at the crucial storage hub in Cushing, Oklahoma, where stockpiles have plummeted to 23 million barrels, their lowest mid-December level in 17 years. This drop means that U.S. crude prices will likely remain stable domestically.

By the end of November, the WTI/Brent spread had widened to around $4.50 per barrel, which previously motivated higher export flows to premium markets in Europe.

However, this surge in exports may be fleeting. Freight rates for transporting oil from the U.S. Gulf Coast to northwest Europe have risen by about $1 since November, now hovering around $3.80 per barrel, according to data from commodity pricing firm Argus.

The tightening WTI/Brent spread has contributed to increasing freight rates, which are now influencing shipments scheduled for late January. Sparta Commodities analyst Neil Crosby noted, "We would expect more limited U.S. to Amsterdam-Rotterdam-Antwerp flows in the short-term to emerge."

Additionally, the integration of WTI Midland crude into the dated Brent index has created a correlation between the two, as WTI Midland's price affects the Dated Brent index on many trading days.

U.S. exports heading to Amsterdam-Rotterdam-Antwerp reached a record 771,000 barrels per day (bpd) in November, fueled by WTI trading at a significant discount to Brent during October. This pricing environment incentivized transatlantic flows to increase, leading to elevated export levels.