July 23, 2018, by Devika Krishna Kumar and Collin Eaton
NEW YORK/HOUSTON (Reuters) – U.S. refiners will import a record monthly volume of crude from the Caspian region in July after snapping up the cargoes when prices reached near six-year lows, according to market sources and Thomson Reuters shipping data.
The unusually large volume of crude is one of many changes in the international oil trade caused by a flood of U.S. shale oil headed overseas.
Record exports of crude from the United States to Europe and Asia have pushed down the price of comparable oil, such as the crude produced near the Caspian in Kazakhstan and Russia. That oil is pumped through the CPC pipeline and loaded in the Mediterranean.
U.S. East Coast refiners, which rely on crude imports, have bought most of the 3.7 million barrels of CPC crude that will reach the United States in July, according to the Thomson Reuters data.
The East Coast refiners have limited access to the oil produced in the shale fields hundreds of miles away in Texas or North Dakota. They buy additional crude from West Africa, Middle East and Europe.
That is because U.S. domestic shipping rules can make it more expensive for East Coast refiners to ship crude from the Gulf coast to the northeast than it is to import oil.
East Coast refiners “can get oil cheaper from the Urals than the Eagle Ford,” said Kyle Cooper, a consultant for options broker Ion Energy.
During May, the price of CPC Blend crude fell to a six-year discount to Dated Brent, making it relatively cheaper than West African grades.
Other factors pushed CPC lower. U.S. exports are locked in further in advance than CPC cargoes. As European refiners locked in cheap U.S. supply, there was less demand for CPC when it reached the market.
And East Coast refiners such as Monroe Energy were not the only ones that bought it, market sources said. Valero Energy Corp and Marathon Petroleum Corp also bought the light CPC oil for their Gulf Coast refineries.
Marathon Petroleum declined to comment. Valero and Monroe did not respond to requests for comment.
U.S. refiners purchased about 9.6 million barrels of CPC Blend so far this year, about 10 times as much as for the whole of 2017, flows data showed.
“Most of this (CPC imports) is going to the East Coast because East Coast refineries will refine lighter crudes,” said Reid I’Anson, economic analyst at shipping intelligence firm Kpler.
Weekly imports from Nigeria dropped to the lowest in nearly two years in early July while imports from Angola remain near the lowest levels for the year, according to preliminary data from the Energy Information Administration.
Asian refiners have also bought more CPC. South Korea has imported four times more CPC Blend crude to date in 2018 than in the same period last year, as refiners there seek to replace Iranian supplies to comply with U.S. sanctions on Tehran that will kick-in from November.
Reporting by Devika Krishna Kumar in New York and Collin Eaton in Houston; additional reporting by Olga Yagova in Moscow; editing by Simon Webb and Tom Brown