New and expanded infrastructure in Corpus Christi, Texas could heighten the already competitive pricing of crude exported from the port at a time when US oil exports face thin margins and tight arbitrage opportunities to major destinations. Crude cargo sellers may start seeing increased competition between Houston and Corpus Christi as some docks in the Corpus Christi area can load larger cargoes. Additionally, that market has limited refining capacity, and offers less options for incremental barrels – other factors that can contribute to more competitive pricing. Increased crude flows direct from the Permian Basin to the Corpus Christi market and expanded and new export infrastructure there has led to a boom in cargo exports recently, even after the coronavirus pandemic slashed demand
Laura Huchzermeyer and Kristian Paris Tialios considers the following as important: crude oil, infrastructure, oil, oil price, US, USGC, WTI
This could be interesting, too:
Marc Chandler writes About that Dollar Bounce
Jerri-Lynn Scofield writes COVID-19 and the California Prison Crisis: 24th San Quentin Inmate Dies Last Friday
Marc Chandler writes The Ant and the Grasshopper: A Window into Macro Part I
Marc Chandler writes The Ant and the Grasshopper: A Window into Macro Part II
New and expanded infrastructure in Corpus Christi, Texas could heighten the already competitive pricing of crude exported from the port at a time when US oil exports face thin margins and tight arbitrage opportunities to major destinations.
Crude cargo sellers may start seeing increased competition between Houston and Corpus Christi as some docks in the Corpus Christi area can load larger cargoes. Additionally, that market has limited refining capacity, and offers less options for incremental barrels – other factors that can contribute to more competitive pricing.
Increased crude flows direct from the Permian Basin to the Corpus Christi market and expanded and new export infrastructure there has led to a boom in cargo exports recently, even after the coronavirus pandemic slashed demand globally and precipitated shut-ins.
In the past six weeks, Corpus Christi and Ingleside have exported a total of 41.3 million barrels of crude (roughly 1.2 million b/d), according to data from S&P Global Platts Analytics and Platts cFlow trade flow software. That accounted for more than 35% of all US Gulf Coast crude exports since June 12.
Growing export infrastructure
The uptick in exports out of Corpus Christi is the direct result of increased pipeline flows. The Corpus Christi market is receiving more Permian crude directly than ever before as a group of new longhaul pipelines have started up within the past year. The startup of the Cactus II, Gray Oak and EPIC lines, with a combined capacity of around 2 million b/d, has meant the port of Corpus Christi has increased access to Permian crude.
Additionally, crude export capabilities in the Corpus Christi area are growing even amid the oil market downturn and demand issues stemming from the pandemic.
Buckeye Partners said July 16 it had started loading the first cargoes of crude for export from its South Texas Gateway terminal at the Port of Corpus Christi. South Texas Gateway is expected to ramp up operations as additional phases of construction are completed by the first quarter of 2021. When fully operational, the terminal will be able to export 800,000 b/d from two deepwater docks. The terminal will have 8.6 million barrels of storage capacity with the ability to expand to about 10 million barrels, according to Buckeye. A third deepwater dock also could be added.
The Corpus Christi area has seen further export infrastructure added in recent months. In April, the Pin Oak Corpus Christi terminal began exporting crude cargoes. The facility can handle up to Suezmax-sized vessels
Moda Midstream completed an expansion project in April at its Ingleside loading facility and Taft hub. The project expanded the company’s crude storage capacity to 10 million barrels. And the company has said it will add another 3.5 million barrels of storage by the end of the year.
In December 2019, EPIC’s Corpus Christi dock loaded its first cargo. The dock, also known as the West Dock, can load up to Aframax-sized tankers. EPIC also is building a neighboring dock, the East Dock, that will load up to Suezmax-sized tankers. EPIC expects the East Dock to start operations in the third quarter of 2020.
Corpus Christi vs Houston pricing
Recent pricing indications are revealing some competitiveness between Corpus Christi and Houston.
WTI crude ex-pipe in Corpus Christi has been heard consistently at a discount to WTI MEH crude, as limited refiner demand in Corpus Christi compared with Houston has resulted in Corpus Christi barrels priced at slight discounts to those in Houston like WTI at the Magellan East Houston terminal, according to sources. Last week, WTI ex-pipe in Corpus Christi was heard talked around a 25 cents/b discount to WTI MEH.
In May, the discount was heard to be even larger, with June WTI barrels ex-Gray Oak pipeline heard traded at a 45 cents/b discount to WTI MEH. Discounted barrels off pipelines in Corpus Christi have allowed for more competitive export cargoes, and with the opening of South Texas Gateway, “we should see more competition coming out of Corpus,” one trading source said.
The competitiveness doesn’t stop at the pipe. Waterborne pricing in Corpus Christi also can reflect the economic advantages that are present at some docks that can load larger quantities onto one vessel.
With crude quality assumed equal, Corpus Christi-loading cargoes can at times be priced more competitively than Houston loadings as a result of economies of scale.
An offer of 750,000 barrels of WTI Midland for an August-loading FOB cargo at the Corpus Christi-area Ingleside dock was heard July 17 at a $1.60/b discount to October ICE Brent. Meanwhile, a slightly smaller 700,000-barrel cargo loading at a Port of Houston location with Permian-direct access was heard at October ICE Brent minus $1.50/b.
Taking into account prevailing freight costs for an Aframax vessel at the time of the indications, the per-barrel price difference between loading at 750,000 barrel cargo and a 700,000 cargo was about 10 cents/b.
Tight arbitrage opportunities
Amid a tight arbitrage environment, more competitively priced cargoes can be the difference between an open or closed arbitrage, bringing spreads between US ports even more starkly into focus.
Cracking margins for WTI MEH crude arriving in Rotterdam have improved slightly in July versus June, however, they remain thinner than those for competing sweet crudes, according to the Platts Analytics Refining Margin Report.
On July 21, the most recent day in the data, cracking margins for WTI MEH in Rotterdam stood at $1.27/b. While improved from a 5 cents/b average margin for WTI MEH crude in Rotterdam for the month of June, competing sweet crudes from West Africa like Bonny Light have had more supportive margins. On July 21, the cracking margin for Bonny Light crude in Rotterdam stood at $2.51/b, compared with a $1.35/b average margin in June.
In Singapore, while improved from June, the cracking margin for WTI MEH has averaged minus 10 cents/b over a five-day period ended on July 21. In June, the cracking margin for WTI MEH in Singapore averaged minus $1.08/b.
Just as US crude refining margins are thin in major regions, arbitrage for grades like WTI MEH have come under pressure, particularly so in Northeast Asia.
The arbitrage incentive for WTI MEH crude in Japan versus Russia’s ESPO crude has averaged minus 27 cents/b through the first 21 days of July, the first month since September 2019 that the arbitrage incentive for imports of the grade in Northeast Asia has been negative.
The arbitrage for WTI MEH into Northwest Europe against local Forties crude, meanwhile, has improved since the start of the month. On July 21, WTI MEH imported into Rotterdam held at a 38 cents/b advantage over Forties. However, during July so far the incentive has averaged just 20 cents/b.
The post Corpus Christi crude competitiveness heats up amid pandemic, tight arbitrages appeared first on Platts Insight.