US crude is likely to undercut Brent prices in 2023 to continue an export boom that has benefitted the VLCC sector, US data suggests.
The US Energy Information Administration (EIA) said the price difference between Brent and its West Texas Intermediate (WTI) equivalent is likely to widen further in 2023 after a year that has seen US exports hit record levels.
European buyers have looked to the US and Asia to fill the supply gap before a full ban on Russian crude starts later this year in a shifting of trade routes that is starting to benefit the largest crude carriers.
Norwegian shipbroker Lorentzen & Co said a flurry of fixtures from the US Gulf to China had been spurred by more attractive prices.
“That’s ... part of the background story to why the VLCC market has been on fire this week,” said chief shipping analyst Nicolai Hansteen in a note.
Hansteen said the price difference in Brent and WTI had led to the highest US exports on record of 5m barrels per day, more than double the previous week.
The price of Brent contracts has been driven up as Europe searches for alternatives to Russian oil, according to the EIA report. The growing price difference has seen buyers look to the US. The spread reached a high of $13.26 per barrel on July 29 — the highest differential for more than eight years.
“From March through July, the Brent-WTI spread averaged $6.05/b, an almost $2.50/b increase from the first two months of the year,” said the EIA in its short-term energy outlook published on Wednesday. It said it expected the spread to continue in 2023.
“This high spread will keep exports from Europe to Asia subdued and encourage higher imports from the United States, both of which will likely be necessary as the EU reduces crude oil imports from Russia by 90% by the end of the year,” it said.
The Baltic Exchange VLCC time charter equivalent (TCE) continued its sharp rises on Wednesday reaching $19,990, up $6,840 on the day. The VLCC TCE rate on the US Gulf to China route stood at $30,770, up $5,953.
The chief executive of Frontline Management, Lars Barstad, this week attributed the rise in VLCC rates to surging US exports.
VLCCs transport about 85% of Chinese seaborne crude imports. The VLCC sector has been in the doldrums since the Covid-19 pandemic saw China’s economy shrink by 6.8% in the first quarter of 2020.
A series of downbeat data has raised concerns about the prospects for the world’s second-biggest economy that could affect future crude imports and tanker rates.
Beijing this week cut its lending rate to try to stem a decline in consumer demand linked to its continuing Covid-19 lockdown strategy and slowing global growth.
