Harvey Sends U.S. Oil Exports to New Heights, But Not for Long

(Bloomberg) -- U.S. crude exports climbed to a record last week thanks to Hurricane Harvey, but the bonanza may be short lived.

Lower demand from Gulf Coast refiners that are still recovering from the August storm has caused crude sellers to seek markets abroad, triggering shipments of 1.98 million barrels a day, the highest level in weekly government data compiled since 1993. The figure was about a third higher than the previous record, set the prior week.

Growing U.S. production has spurred export volumes this year, the second since 40-year-old restrictions on crude shipments abroad were lifted. But the latest spurt comes as the crude glut created by Harvey has pressured the price of West Texas Intermediate crude in relation to international benchmark Brent. That has made American crude more attractive than oil from the North Sea, but the arbitrage window is already tightening.

“This big arbitrage has incentivized exports,” John Auers, executive vice president at energy consultant Turner Mason & Co. in Dallas, said by phone. “As refiners return, the WTI-Brent spread will narrow. Gulf Coast demand recovering from the storm will mean less domestic crude will leave the U.S.”

For a chart on the narrowing WTI-Brent spread, click here.

WTI for December delivery settled $5.48 a barrel below December Brent on Wednesday. The spread between the front-month futures contracts was more than $6 last week, WTI's widest discount in more than two years.

Refiners Return

While refineries in states along the Gulf Coast have restarted some units, they are still operating below pre-storm levels.

“Not all Gulf Coast refiners have recovered,” said Sandy Fielden, director of research and commodities for Morningstar Inc. “There is still capacity not brought back on line.”

Harvey did more to boost exports than just shutter refineries, though.

Waterway disruptions caused by the storm kept suppliers from being able to move their cargoes, and they're now catching up on deliveries, Fielden said. 

For a story on the backlog of ships at Sabine Pass, click here.

Almost a month after the storm passed, the Sabine Pass -- gateway to the Texas ports of Beaumont and Port Arthur -- still had backlog of ships waiting since the storm to enter, according to data compiled by Bloomberg. Heavy silting and sand buildup requiring dredging kept cargoes from sailing for weeks, even after the ports had reopened.

Temporary Increase

The surge in exports isn't expected to last long, though, unless there's another hurricane, Auers said, adding that the U.S. can comfortably export 1 million barrels a day or slightly more.

“We are close to the peak export level,” he said, noting that levels of 1.5 million to 2 million barrels a day were a “temporary phenomenon” that wouldn't be possible even with all U.S. refineries operating. Still, as U.S output grows, exports will rise and there will be plenty of opportunities to reach those heights again, he said.

To contact the reporter on this story: Sheela Tobben in New York at vtobben@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Margot Habiby, Carlos Caminada