Industry Trend Analysis - New Opportunities For US Crude - APR 2017

BMI View: Price differentials are favouring US crude exports, with unprecedented opportunities opening up in Asian markets as OPEC cuts push Dubai crudes to a premium to WTI, drawing in record cargos that will bring down US crude inventories and aid market rebalancing.

Following OPEC's November announcement to cut output in the first half of 2017, the price of US's crude benchmark against the other two global benchmarks Brent and Dubai has become more competitive. Throughout 2016, Dubai-linked crudes were mainly trading at a discount of between USD5.0-0.5/bbl. However, following the OPEC cuts this spread flipped from a discount to premium of - at its extreme - USD2.92/bbl.

The reduction in output from OPEC members has caused the Dubai benchmark to strengthen as supply is constrained. This is turn has made WTI and therefore US exports more competitive against Dubai-linked crudes which are heavily directed towards Asian consumers. The switch in pricing dynamics for the first time since the US lifted its embargo on crude exports has opened up new opportunities for US crudes.

Asian Arbs Responsible For Export Spike
Weekly US Crude Exports (top panel - 000 b/d) & WTI- Dubai Price Spread (bottom panel - USD/bbl)
Source: DOE, Bloomberg, BMI

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