Houston and the rest of the US Gulf Coast have more crude oil than the region can handle.
Stockpiles in the region centered on Houston and stretching to New Mexico in the west and Alabama in the east rose to 202 million barrels in the week ended April 4, the most on record, Energy Information Administration data released on Wednesday show.
Storage tanks are filling as new pipelines carry light, sweet oil found in shale formations to the coast and US law keeps companies from moving it out. Most crude exports are banned and the 13 ships that can legally move oil between US ports are booked solid. The federal Jones Act restricts domestic seaborne trade to vessels owned, flagged and built in the US and crewed by citizens.
“You can’t get all that light, sweet crude out, it’s all kind of piling up,” said Jeff McGee, the founder of Makai Marine Advisors in Dallas, who previously led research at two shipbrokers and worked as a refinery planner. “You couldn’t find a spot Jones Act ship to save your life right now.”
The glut will make prices of benchmark West Texas Intermediate oil US$13 a barrel cheaper later this year than Brent, the international benchmark, according to Bank of America forecasts. The EIA forecasts the average gap for 2014 will be about $9. WTI traded at a discount to Brent of $4.19 a barrel this morning on the ICE Futures Europe exchange in London.
Companies including TransCanada and Enterprise Products Partners built and reversed pipelines that helped a carry a record amount of oil to the Gulf Coast from the Midwest last year. Total US production reached 8.23 million barrels a day last week, the highest level since May 1988.
Even as senator Lisa Murkowski of Alaska, the senior Republican on the energy and natural resources committee, added her support to ExxonMobil’s call to lift restrictions on crude exports, other lawmakers in Congress say they are concerned shipments would increase petrol prices at home.
“The ban on exporting US crude is mainly responsible for the pileup of crude stocks on the Gulf coast,” said Harry Tchilinguirian, the head of commodity markets at BNP Paribas, France’s largest bank. “The Jones Act is an additional hurdle in trying to move that surplus crude on the Gulf Coast to other areas of the US.”
The glut may start to shrink in the second quarter as refineries ramp up to meet summer gasoline demand. Plants on the Gulf Coast handled a record 7.92 million barrels a day of crude last year, equal to almost 80 per cent of Chinese consumption in 2012, according to IEA and EIA data compiled by Bloomberg. Refinery runs in the region rose by 167,000 barrels a day to 8.22 million last week, EIA data show.
* Bloomberg News