USG Export Activity
March 31, 2023
This week we highlight the strong activity for cargo loading out of the US Gulf. This level of activity is expected to persist through the summer months due to strong US crude export levels. Based on our multi-variable regression model, McQuilling forecasts that US crude exports are projected to reach its peak in the mid-year before trending lower towards the 4th quarter. The main contributing factor is the US Strategic Petroleum Reserve (SPR) release, as DOE announced a total of 26 million barrels will be released from April to June, or approximately one extra Aframax loading every other day. In the meantime, US crude production is expected to continue growing by 404,000 b/d in the first half of this year and to remain relatively flat in the second half.
The growing crude production and continued storage release is projected to boost the overall crude supply, supporting export activity in the summer. On the crude demand side, with US refineries coming out the maintenance in the summer, US crude demand could find strong support from June to August. However, a large portion of these increased crude demand will be fulfilled by the elevated import volume. We project continued growth in US crude imports to an average of 6.7 million b/d during the same period, compared to 6.4 million b/d in the month of February (according to the US EIA). These crude imports could be sourced from the Middle East and Latin American countries, but also potentially from Venezuela given the export licenses granted to a select number of firms such as Chevron.
This presents strong fundamentals for the DPP tanker market. VLCC tanker demand (Figure 1.1) shows a strong correlation with the US crude export volume (red-dotted line) since the beginning of 2022. The US SPR release of 180 barrels in 2022 has pushed crude export volume to record-highs, especially when we consider the majority of the released barrels were light sweet grades in the 2H of the year. During the same period, VLCC tanker demand simultaneously jumped by almost 15% and supported elevated earning levels. As US crude export expected to find support again this summer (Figure 1.2), VLCC demand and earnings in the US Gulf could see elevated rate pressure. A knock-on effect could be the rising lightering demand for Aframaxes, pushing the earning level for this already heated tanker sector. This is due to the fact that every VLCC load in the offshore US Gulf requires 2-3 Aframaxes worth of demand for lightering operations.
Figure 1.1: VLCC Demand vs Crude Exports Figure 1.2: US Crude Export Levels
Source: McQuilling Services; US EIA, JBC Energy, AIS Tracking
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