VLCC crude exports on USGC-Europe route peak at 11 loadings in January

Crude oil shipments on Very Large Crude Carrier tankers from the US Gulf Coast to Europe approached record-high numbers in January and are expected to increase in the coming months as a result of changing trade flows that resulted from the Russia-Ukraine war, with freight levels reaching the $4.3 million mark on Feb. 16.

With the implementation of the Russian crude ban on Dec. 5, 2022, Europe has become ever more reliant on US crude shipments. As Europe attempts to replace Russian crude with USGC-origin barrels, tonnage supply has needed to rebalance globally.

US exports of oil to Europe rose 39% to 1.48 million b/d in 2022 compared with 2021, US Census data showed, and have seen an increase in flows on VLCCs, delivering competitively priced barrels into the region, as large vessel sizes can often lead to lower per-barrel costs.

S&P Global Commodities at Sea data showed 11 VLCCs left the USGC for Europe in January, nine of which were routed for ports on the UK Continent, an all-time monthly high, while shipments in February and March could be even higher.

"We for sure are seeing more [trans-Atlantic] runs on the VLCCs," one shipbroker said. "It's also been cheaper to couple everything up onto one VLCC if you can, and discharge in Rotterdam."

Recessionary pressure in the US has also led to lower domestic demand for crude oil, further bolstering exports across the Atlantic. Alongside favorable freight rates, US-origin barrels have seen an increase in favorability for European buyers amid strong refinery margins in Northwest Europe. Midland-spec WTI crude produces a strong gasoline yield, but it is also rich in naphtha, making it a more favorable and lower-cost option for European refiners.

USGC crude sees strong differentials

European refiners have continued to snap up Midland-spec WTI crude as a replacement for Russian barrels so far in 2023. US Gulf Coast crude grades have seen strong differentials through the start of 2023, with sources pointing to high export demand as one factor supporting differentials.

West Texas Intermediate crude at the Magellan East Houston terminal, against which WTI FOB values are often calculated, has averaged a $2.47/b premium to WTI in Cushing, Oklahoma, through the first half of February, up from an average of $1.51/b in January and 69 cents/b in December.

WTI crude flows to Europe will likely increase in the coming years, pushing more VLCCs on USGC-to-UK Continent/Mediterranean runs, shipowners polled by S&P Global Commodity Insights said. Owners added that the ports of Rotterdam, Le Havre and Antifer were the main UKC disports, while Fawley can berth VLCCs laden with 1.5 million-1.6 million barrels. In the Mediterranean, Algeciras, Gibraltar, Marsaxlokk and Marseille serve as major disports, according to shipowners and CAS data.

Exports poised for growth

January saw 35 VLCCs carrying up to 2 million barrels of crude from the USGC to international destinations, according to CAS shipping data, compared to the record-high 37 VLCC shipments during November 2022. Of the January shipments, 14 VLCC shipments discharged in Europe, while six of the tankers steamed to China, the main discharge country in the Far East region.

February and March are slated to see even higher figures for exports on VLCCs, particularly for flows to Asia, Kpler data shows. Many of these flows to Asia are destined for China, a nation that is expected to be the driver of oil demand growth in 2023.

In its February Oil Market Report, the International Energy Agency projected world oil demand to grow by 2 million b/d in 2023 to 101.9 million b/d. Of that 2 million b/d of growth, China is expected to account for 900,000 b/d, as the relaxation of coronavirus restrictions in the world's largest crude importer is set to boost demand.