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Who would have thought that America would become a global fuel factory? We knew that the United States was on the road to self-sufficiency in crude oil but the trade route that sucked energy into the U.S. is not just abating. It has now reversed. America is becoming a fuel export and the big trading houses are scrambling to book vessels to ship fuel from Gulf coast oil refiners to overseas destinations.
West African countries that once exported their crude oil to refineries in New Jersey are frantically searching for new customers in Asia; their product spurned in favour of cheaper U.S. shale oil and Canadian oil sands crude. These African nations, still dysfunctional but with economies now buoyant and ravenous for fuel, are buying diesel and gasoline from America. Reuters reports a frenzy of interest by oil traders in medium-sized tankers to ship fuel. Bookings have risen by two thirds from last year and charter rates are soaring.
The point is that U.S. refiners are minting money – and they are also stealing business from their European rivals. Europe was once the main supplier to Africa and cargoes of European gasoline once crossed the Atlantic in convoy to unload in New York harbour. That trade is languishing thanks to the high cost and dwindling output of North Sea crude and a shift in focus of Russian oil exporters who are now directing their trade East to Chinese refiners. European refineries are now operating at 75 per cent capacity, a level that is barely profitable.
You can see the financial impact in the so-called gasoline crack margin. Weak European demand for fuel and expensive feedstocks mean that the margin between the cost of a barrel of crude oil and the wholesale price of a barrel of gasoline has hovered at about $3 (U.S.) since January. For their American cousins, life is sweet, as the same margin has been in double figures, reaching as high as $20 in February and March this year.
Small wonder that American oil refiners have been running their plant fast and, in so doing, have been running down stocks of crude in the tank farms of Cushing, Oklahoma, delivery point of West Texas Intermediate, the U.S. benchmark for crude oil. Signs that the American glut of oil is beginning to decline have sent the price of WTI upwards and the margin between North Sea Brent and WTI, once in double digit dollars is now about 50 cents.
My guess is that WTI will once again become the premium crude benchmark. It makes sense, with the American economy buoyant, supplies of oil abundant and global demand finding its way into U.S. fuel factories which are now serving the world.
The story was once that American oil markets were a regional sideshow. Brent was the global benchmark for energy. How quickly that has changed.
Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights .