As decreasing stockpiles at the main US storage hub echo through markets from Asia to the Middle East to Europe, oil buyers throughout the world are facing some of the highest premiums for supply they’ve seen in months — or longer.
This year’s premium for flagship US crude cargoes offered in Asia is the highest. While the premium for near-term US supply is almost at its highest level since July 2022, the spread between Brent and Middle Eastern oil has soared to its largest level since February.
The delivery point for benchmark US crude futures, which helps to determine the price of oil across the Americas and beyond, is in Cushing, Oklahoma, which serves as the focal point of the narrative. At the moment, hub inventories are just above seasonal lows last observed in 2014. The world was already experiencing a tight supply crisis due to Saudi Arabia and Russia cutting back on production at the time that was happening.
The US had recently filled a market gap by routinely exporting more than 4 million barrels per day to satisfy the world’s desire. Due to imports from abroad and high domestic demand, US inventories swiftly shrank. Whether those flows will continue is now in doubt.
Gary Ross, a seasoned oil consultant turned hedge fund manager at Black Gold Investors LLC, stated that “we are running out of oil” in reference to Cushing’s low storage levels. “Since Europe depends on US exports, if we run out at Cushing, we’re also running out there. Where will Europe get its oil if the US reduces its exports?
According to dealers that purchase and sell the grade, cargoes of West Texas Intermediate Midland crude for January delivery to Asia are being offered for sale at a premium of $9 per barrel over benchmark Dubai oil. According to statistics gathered by Bloomberg, that would be the largest premium observed this year. Next week’s expected commencement of actual trade will provide more information regarding how much more robust the market for US barrels has become.
On the ICE Futures Abu Dhabi exchange, Murban crude from Abu Dhabi rose against Dubai. Middle Eastern crude spot cargoes won’t start trading until the following weeks, but on Thursday, the premium for the grade—often compared to WTI Midland—rose to its biggest level since February.
The increase is already noticeable in the futures market. The difference between US crude and the international benchmark Brent fell to under $3 per barrel, the smallest since May of last year, as a result of constrained US supply. The gap between Brent and Middle East’s Dubai benchmark, commonly known as Brent-Dubai EFS, has increased dramatically in the meanwhile.
Despite the anxiety surrounding the falling US stockpiles, there are still no observable signs that American exports are slowing down.
According to Matt Smith, an oil analyst at Kpler, waterborne exports in October are still anticipated to be close to 4 million barrels per day. We might not fully feel the effects of the tighter Brent-WTI spread until November’s loadings because of their lag time.
According to Smith, who cited robust domestic shale production, exports are still anticipated to remain close to the 4 million barrels per day level through November and beyond.
Traders also refer to the Gulf Coast region’s very healthy inventory levels as evidence that US exports may remain solid for a few more weeks. Additionally, turnarounds in Europe and intensive seasonal maintenance work at US refineries should provide a cushion and release some supply.
Prices for WTI in Midland and Houston are already falling behind those in Cushing. If this keeps happening, the opportunity for profitable crude shipping to Asia may one again become available. More barrels being sent to Cushing should also be helpful.
However, there are indications that some European refiners are being forced to make expensive upfront purchases.
Over the previous week, Sonangol of Angola sold four cargoes for up to $1.50 per barrel more than the offer price, with three of the shipments apparently headed for Europe. These cargoes would typically be headed for Asia; the unusual trade pattern reflects some of this week’s volatile market movements.