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Analysis: Cheaper US crude loading logistics likely to lure more Asian buyers

Singapore (Platts)--8 Mar 2018 613 am EST/1113 GMT


Apart from competitive spot price indications, lower cost of oil transportation from the US Gulf Coast to the Far East could provide Asian refiners with more reason to shop for US crude oil going forward, as a few loading terminals in the USGC expect to handle large dirty tankers in the coming years.

The successful VLCC crude loading operation at the Louisiana Offshore Oil Port last month would further boost Asian end-users' interest in US crude as logistics costs could be cut significantly, industry sources said.

Shell was responsible for the recent VLCC loading of crude at the LOOP terminal and the new logistics option will set the tone for US-Asia crude flows to become the "new normal," Mark Quartermain, vice president of crude trading and supply at the oil major said at the S&P Global Platts Asian Refining Summit in Singapore Thursday.

In addition, the outlook for more upgrades in various crude loading terminals in the USGC over the coming years would also draw plenty of Asian buyers' interest, Daniel Ahn, deputy chief economist at the US Department of State, said on the sidelines of the Platts event.

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"Both the private and public sector in the US are keen to invest in [maritime] infrastructure upgrades ... there is strong appetite for that," Ahn said.

If more USGC terminals can accommodate super tankers, it's highly likely for US-Asia trade flows to pick up further in the years to come, he added.

Terminal operator LOOP LLC confirmed last month that it successfully completed the first VLCC crude loading operation at its Deepwater Port, 18 miles offshore of Port Fourchon in Louisiana. The supplier of the crude was Shell.

On February 19, the VLCC Shaden left from the Louisiana Offshore Oil Port with a 2-million-barrel cargo carrying Mars Blend crude due to reach Rizhao port by mid-April, Toby Li, a trading manager with Unipec told Platts last week. The Rizhao port is home to Sinopec's refineries on the east coast of China.

Crude has been exported on VLCCs from the USGC via reverse lightering operations, with smaller vessels carrying the cargo to load the carriers offshore.


US CRUDE LOADING COST CUTS


Although the North American pricing benchmark WTI's discount against Dubai crude narrowed sharply over the past several weeks, expectations of sharp reduction in logistics costs will likely maintain Asia's focus on US crude, traders said.

"Imagine if several more USGC terminals can handle big tankers ... loading costs would come down and make arbitrage economics even more viable. [Asian] refiners would rush to buy more US crude if the freight costs can be reduced by a big margin," a sour crude trader at a Chinese state-run oil company said.

The cost of loading crude directly to a VLCC tanker from the Louisiana terminal may be as little as 10 cents/b and as much as 50 cents/b cheaper than conducting lightering operations, a trading manager at a South Korean refiner said.

"Lightering operation is not favored by refiners buying crude from a long distance away ... direct-VLCC loading [in the US Gulf Coast] will help buyers save lots of time and money," the trading manager said.


INDIAN REFINERS KEEN TO BUY MORE


Apart from major Northeast Asian oil consumers, India is also expected to extend its US crude buying spree, with the country's state-run refiners aiming to make the most of the LOOP terminal's capability to handle large oil tankers.

"Indian companies would never hesitate to lift crude oil directly to a VLCC from the LOOP port," a sour crude trader at an Indian state-run refining company said.

Indian oil ministry officials recently said state-owned refiners Indian Oil Corp., Hindustan Petroleum Corp. Ltd., and Bharat Petroleum will keep the window of US crude purchases wide open for the second straight year in the new fiscal year beginning in April.

"We are open to buying more US grades," an IOC official said, adding that the company is also open to signing term deals.

Indian refiners typically source 70%-80% via term contracts, while the rest is met through buying in the spot market.

Last year, India's state-owned refiners had bought close to 8 million barrels of various US crude grades, with nearly half of the import volume booked by IOC, the country's flagship refiner.

-- Gawoon Philip Vahn, Philip.Vahn@spglobal.com

-- Ratnajyoti Dutta, newsdesk@spglobal.com

-- Edited by Geetha Narayanasamy, newsdesk@spglobal.com




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