Americas Experience Glut of Heavy Oil Due to Freight Squeeze
The Americas have seen a significant buildup of heavy oil due to soaring freight rates stifling exports from the region. This glut has led to an unusual split in the global oil market, with buyers in Asia and Europe struggling with supply shortages.
Heavy crude is a denser type of oil that Asian, many US, and some European refineries are typically configured to process. It is usually cheaper than light crude, offering refiners better margins when shipping costs are affordable. The Americas have been producing more oil than they consume, relying on exports to Asia to balance their crude markets.
Freight Costs Skyrocket
The cost of hiring a supertanker from the US Gulf Coast to Asia has more than quintupled since February, as ship-to-ship transfers in the Gulf of Oman tie up vessels worldwide. This surge in freight costs has made it difficult for refiners to export heavy oil, leading to the current glut.
“You need a ship and the price of ships are going up, and the availability of ships is going down,” said Scott Shelton, an energy specialist at TP ICAP. The high cost of shipping has led to a decrease in exports from the Americas, causing a shortage in Asia and Europe.
Refiners Maxed Out
US refineries have operated at about 93.5% capacity on an average weekly basis so far this year, according to the Energy Information Administration. This is the highest level in 28 years as they crank out as much fuel as they can to profit from record high diesel prices. While those refineries are complex and geared to run a heavier crude slate, they can only process it up to a certain percentage of their total capacity.
Heavy Crude Prices Ease
Flagship Canadian, Colombian, and Ecuadorian heavy crude grades have all eased more than $10 a barrel to trade at their lowest level in six weeks, according to price reporting agency Argus Media. Prices for Western Canada Select, excluding shipping or insurance costs, was around $74 on Thursday; Colombia’s main grade Vasconia was trading at around $84; and Ecuador’s Oriente was trading at around $76, Argus said.
Venezuelan crude excluding shipping costs was trading around $74.50 a barrel on Thursday, two traders said. The easing of heavy crude prices is a result of the glut in the Americas and the decrease in demand due to the high cost of shipping.
Conclusion
The current glut of heavy oil in the Americas is a result of soaring freight rates stifling exports from the region. This has led to an unusual split in the global oil market, with buyers in Asia and Europe struggling with supply shortages. The high cost of shipping has also led to a decrease in demand for heavy crude, causing prices to ease.
Original Article: Americas have glut of heavy oil due to freight squeeze; Asia, Europe scramble for barrels | Reuters — Reuters