Asian traders look to snap up US crude

Flood waters caused by tropical storm Harvey encompass the Motiva Enterprises LLC in Port Arthur, Texas, US. — Reuters

SINGAPORE, Sept 6 (Reuters): Some oil traders in Asia are looking to snap up crude cargoes from the United States (US) after Hurricane Harvey closed US refineries, denting local demand and pushing out the price spread between US and Atlantic Basin crude benchmarks.
Hurricane Harvey barreled into the US Gulf of Mexico coast around 10 days ago, closing nearly a quarter of the nation's refining capacity, although some of that is now coming back online.
The closures pushed the prompt-month spread between West Texas Intermediate crude CLc1 and Brent crude LCOc1 to the widest in two years at nearly $6 a barrel last week, prompting Asian traders to hunt for competitively priced U.S crude. However, some said spot prices would need to ease further before traders fixed cargoes for the journey east.
"One good piece of news is that the WTI-Brent spread has blown out so much that means excess US crude is going to be exported," said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.
"It looks like there wasn't much damage to export facilities and they should come back up quicker (than expected)."
Prices for WTI light grades were the weakest and they could head to Asia first, said a Singapore-based trader, declining to be identified as he was not authorized to speak with media.
Still, the market is evolving daily with spot levels for WTI Midland WTC-WTM rebounding on Tuesday after several refineries restarted post-Harvey.
Taiwanese refiner Formosa Petrochemical Corp (6505.TW) could consider buying from the United States.
"We're watching the situation," spokesman KY Lin told Reuters.
"US crude's length may worsen and put more downward pressure on prices in the next two weeks."
Spot premiums for Mars WTC-MRS, another grade that's popular with Asian refiners, edged down on Tuesday from more than two-year highs as more tankers were allowed to offload sour grades in the Gulf.
US crude supplies are expected to stay elevated because at least 1.4 million barrels per day of refining capacity could still be offline past mid-September, Goldman Sachs analysts said in a note on Wednesday.
"We project that the hurricane will have added 40 million barrels to US crude inventories in the month following landfall," the analysts said.
Companies that often ship US crude to Asia include BP, Chevron Corp, Trafigura, Mercuria and Occidental in addition to North Asian refiners Unipec, PetroChina, JXTG, Cosmo Energy, GS Caltex and SK Energy.
Another report from London adds: Oil prices rose on Wednesday as strong global refining margins and the reopening of US Gulf Coast refineries provided a more bullish outlook after sharp drops due to Storm Harvey.
Brent LCOc1 had gained 28 cents to $53.66 a barrel by 0952 GMT. US West Texas Intermediate (WTI) crude futures Clc1 were up 15 cents at $48.81.
"Hurricane Harvey was bearish for crude and speculators went massively short WTI but now there is a reversal to positions pre-Harvey. Strong margins are helping underpin crude ... gasoil is at its highest point this year," Olivier Jakob of Petromatrix consultancy said.
Many refineries, pipelines and ports that were knocked out by Harvey 10 days ago are restarting. As of Tuesday, about 3.8 million barrels per day (bpd) of refining capacity, or 20 per cent of the US total, was shut. This compares with 4.2 million bpd at the height of the storm.
Focus was also being drawn to the Category 5 storm Hurricane Irma, which is barreling toward the Caribbean and Florida and could knock out other refineries and cause more fuel shortages.
Around 250,000 barrels of daily refining capacity in the Dominican Republic and Cuba lies in the immediate path of Irma, Thomson Reuters Eikon data showed.
Fuel storage data due on Wednesday from the American Petroleum Institute and on Thursday from the Energy Information Administration is expected to give a better view of the extent of Harvey's impact on US fuel inventories, although analysts say it will take a few weeks longer to get a complete picture.
There is also another tropical storm on Irma's heels in the Atlantic, and another one active in the Gulf of Mexico.
Longer-term, the oil industry outlook is for ample supplies and low prices as crude output remains high in the three biggest producing regions: Russia, the Middle East and North America.
Russian Energy Minister Alexander Novak said on Wednesday he expects the 2018 price of Brent to be $45 to $55 per barrel.
Analysts said oil companies had adjusted to lower prices by cutting costs and thanks to improved refinery margins.
"The oil majors are looking more comfortable at lower oil prices, posting strong quarterly results in Q2 despite weaker upstream revenue," BMI Research said in a note.