Oil for U.S. hawked to others as storm snarls flows of crude

By Serene Cheong on 9/7/2017

SINGAPORE (Bloomberg) -- Sellers of crude to U.S. refineries that are still assessing the damage from Hurricane Harvey are seeking an alternative home for their supply.

South American oil for the Gulf Coast is being  offered to Asian buyers for October arrival instead, according to traders who asked not to be identified. The refiners are being approached as they prepare to secure crude from within the region and the Middle East for November. At least one processor in Europe is also being informed about the availability of a Nigerian cargo, just days before the shipment is scheduled to load from West Africa.

Harvey, which hit the Gulf Coast late last month and left almost a quarter of U.S. refining capacity disrupted in its wake, has already rattled oil-product markets across the globe. While traders rushed to ship fuel to the U.S. to fill a potential supply gap, some are reconsidering those plans. Now, the effect of the storm is starting to seep into the world of physical crude flows. The latest offers could lure buyers in Asia that are enjoying stronger refining margins as a result of the hurricane.

Suezmax vessels Searacer and Karvounis have been provisionally chartered to transport oil from the Caribbean for early September, with discharge options in the U.S. Gulf Coast as well as Singapore, data from a shipbroker and traders show.

A total of 38 tankers, with capacity of about 23.5 MMbbl, to deliver imported oil or receive U.S. supplies were drifting off the U.S. Gulf Coast in the aftermath of Harvey, according to ship-tracking data compiled by Bloomberg. Stranded vessels include those transporting crude from Latin America, Europe, the Caribbean, Africa and the Middle East.

While about 3.26 MMbpd of U.S. refining capacity has restarted or is restarting operations, about 8% of the nation’s processing capability is still halted, data compiled by Bloomberg show. Goldman Sachs Group Inc. estimates that about 2 MMbpd of capacity could remain shut-in beyond Thursday, with at least 1.4 MMbbl expected to stay shuttered past the middle of the month.

West Texas Intermediate, the U.S. marker, has slid versus Brent crude, the benchmark for more than half the world’s oil, as refining plants shut after the storm. The American grade was almost $5/bbl below Brent on Thursday at 5:32 p.m. Singapore time. That drop has made cargoes priced against WTI potentially more attractive to buyers in other regions versus competing cargoes.

While speculation has increased over the availability of fuel in the U.S. as its refineries shut production, so have margins in regions elsewhere such as Asia. The profit from turning Dubai crude into oil products in Singapore, the regional trading hub, has averaged $10.06/bbl this month, rising from $7.60/bbl in August. The spread had jumped to the highest level in more than two years earlier in September.

Refiners in some Asian countries such as India and Singapore could ramp up crude processing, while South Korean plants are already operating close to maximum capacity, according to Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd., as profits from making gasoline and diesel rise.

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