Sliding US oil production reviving reliance on imports; tanker owners benefit as long-distance trade route boosted

Bloomberg
London

Opec’s latest challenge to US shale oil producers would be about two miles long, lined end to end, and weigh almost 3mn metric tonnes. It’s due to reach American ports this month.
Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to US ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19mn barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures.
The cargoes show how competition for sales among members of the Organisation of Petroleum Exporting Countries is spilling out into global markets, intensifying competition with US producers whose own output has retreated since summer. For tanker owners, it means rates for their ships are headed for the best quarter in seven years, fuelled partly by the surge in one of the industry’s longest trade routes.
“In the longer term, we expect the US to have to increase imports next year by some 500,000 barrels to 800,000 bpd year on year,” Steve Sawyer, the head of refining at FGE, a consultant in London. “Given our projections for Iraqi output, it could well come from here.”
Iraq, pumping the most since at least 1962 amid competition among Opec nations to find buyers, is discounting prices to woo customers. The US may increasingly become one of them after its own output dropped by as much as 500,000 bpd since June. An increase in trade between the two would boost tanker owners. Deliveries take at least 57% longer than for those to Asia, the most popular destination.
The tanker industry’s biggest ships earned an average of almost $76,500 a day so far in the fourth quarter, which would be the highest since mid-2008 if maintained through year-end, according to data from Clarkson, the world’s biggest shipbroker.
Shipowners have already seen the benefit of higher rates thanks in part to the longer-distance cargoes. Shares of Oslo- listed Frontline Ltd, led by billionaire John Fredriksen, rose 61% to $28.60 from the 2015 low in August. Euronav is up 25% from the year’s low in February.
The ships bringing the 19mn barrels include vessels that left Iraq’s Basra Oil Terminal and are currently signalling US ports as their destination. There is also one vessel that went through Egypt’s Suez Canal and identified by shipbrokers as going to the US All except one are very large crude carriers, the industry’s biggest vessels, sailing to terminals in the Gulf of Mexico.
The US is pumping 450,000 bpd less crude than during the peak in June. If all that oil were replaced by supplies from Iraq, it would require about seven supertankers each month.
Iraq is among the least expensive places in the world to extract crude. Capital costs are about seven times cheaper than for light, tight oil suppliers in the US when measured by fields’ daily plateau capacity, according to the International Energy Agency in Paris.
The Middle East country sells its crude at premiums or discounts to global benchmarks, competing for buyers with suppliers such as Saudi Arabia, the world’s biggest exporter. Iraq sold its Heavy grade at a discount of $5.85 a barrel to the appropriate benchmark for November, the biggest discount since it split the grade from Iraqi Light in May. Saudi Arabia sold at $1.25 below benchmark for November, cutting by a further 20 cents in December. “It’s being priced much more aggressively,” said Dominic Haywood, an oil analyst at Energy Aspects Ltd in London. “It’s being discounted so US Gulf Coast refiners are more incentivised to take it.”
An oil tanker is anchored near the Port of Long Beach, California, US (file). For oil tanker owners, rates for their ships are headed for the best quarter in seven years, fuelled partly by the surge in one of the industry’s longest trade routes.