Crude oil from Nigeria and other West African countries are being displaced by
United States’ crudes, Light Louisiana Sweet and MEH, which represents WTI Midland crude at the Magellan East Houston Terminal.
LLS and MEH were assessed at parity Monday, for the first time in almost a month, as MEH displaces comparable West Africa crudes in Europe, according to Platts.
The current cost of WTI Midland arriving in Europe is Dated Brent plus $1 per barrel, according to one crude trader. Freight rates for shipping West African crude from Nigeria to Rotterdam on a Suezmax tanker are put at $1.34 per barrel.With an API gravity of 38 to 40 degrees, WTI Midland crude is of a higher quality than Nigeria crudes Bonny Light with an API gravity of 35 degrees; Escravos with an API gravity of 33.51 degrees, and Qua Iboe with an API gravity of 36 degrees.
Added to that, Bonny Light FOB Nigeria London versus the WAF Dated Strip is at plus 15 cents per barrel, Qua Iboe FOB Nigeria versus the WAF Dated Strip is 55 cents per barrel, and Escravos FOB Nigeria versus the WAF Dated Strip is minus 15 cents per barrel. This puts all three Nigerian crudes at a premium to the price fetched for WTI Midland arriving in Europe.
WTI Midland’s ability to be delivered to Europe more cost-effectively and its higher quality than these West African crudes have caused demand for WTI Midland outside the US and in Europe to increase, according to a market source.
Since the US crude export ban was lifted, several shipments of US light crude, including WTI Midland grade crude, have been exported to markets outside the US.
Enterprise Products Partners announced earlier today it expects to load 13 million barrels of US light crude during the first quarter of 2016 from its US Gulf Coast terminals, with the cargo possibly including some WTI Midland grade crude.
In early February, the first US WTI crude oil cargo destined for the Caribbean region arrived at Bullen Bay, Curacao. The cargo was priced at a $3.96 per barrel premium to the NYMEX light sweet crude oil futures contract on a delivered basis, according to sources.
In mid-January, Japanese refiner Cosmos Oil bought a 300,000 barrel crude cargo, loading it along with 700,000 barrels of US condensate on a Suezmax tanker to ship to its China refinery in Tokyo Bay.
The export of LLS was said to have involved several logistical difficulties, while MEH is easily exportable due to its easy access to export loading facilities in the Houston area.
In recent months, MEH has been inching closer to LLS. MEH first reached parity to LLS in mid-December, representing the first time it has done so since Platts began assessing MEH in February 2015.
After beginning the year at 25 cents/b, the WTI Midland differential has strengthened to its current level of 45 cents/b. The MEH differential also has continued to rise since the start of the year, increasing from WTI cash plus $1.15/b at the start of the year to its current assessment of $2.35/b.
sourceEven though the cracking netback margin for WTI Midland remains well below that of LLS, the ability to export WTI Midland out of Houston terminals is lending strength to the MEH differential. The cracking netback margin for LLS fell from $4.59 per barrel February 1 to $4.14 per barrel by the end of the month, versus the cracking netback margin for WTI Midland, which increased from 18 cents/b February 1 to 84 cents per barrel by the end of the month.