US oil refineries are turning back to old suppliers in west Africa as the growth in shale production slows, reigniting a transatlantic trade in crude cargoes that had withered during the tight oil boom.
The number of barrels of west African crude shipped to the US is at its highest level in almost two years, as strong refining margins and attractive prices have seen US plants snap up cargoes.
The move comes as traders and investors are watching for signs the US shale oil boom has peaked, after growth of more than 1m barrels a day each year between 2011 and 2014 helped create a global oil glut.
It may also throw a lifeline to producers of light, sweet crude in west Africa, who had largely lost access to North American buyers since the surge in output of similar quality oil from shale fields such as North Dakota’s Bakken and the Eagle Ford in Texas.
“Demand for light, sweet crude [in the US] is outstripping supply,” said Amrita Sen, head of oil research at Energy Aspects in London. “It’s likely these imports will continue at least for the next six months.”
While the volumes are not expected to recover to the levels seen before 2010, when Nigeria and Angola at times sent almost half of their oil exports to the US, it may contribute to tightening supplies in other regions.
West African producers have often been forced to discount their high quality oil to win new customers in Asia and Europe over the past five years.
Data from energy intelligence group Genscape shows in addition to US crude oil imports from Nigeria and Angola — the two largest African producers — US plants in the second half of this year have taken more cargoes from smaller producers such as Cameroon and Gabon.
Among the importers since July is refiner Phillips 66, which has purchased crude from Gabon and Angola for its New Jersey refinery. Philadelphia Energy Solutions has also taken Nigerian crude for its plant on the US east coast, according to the US Energy Information Administration. Some barrels are also going to the US Gulf Coast.
Genscape said for the first six months of the year a maximum monthly total of between 3m barrels and 6.6m barrels arrived from countries on Africa’s west coast.
In July and August this increased to 8m barrels and 9.6m barrels respectively. While September imports dipped to 6m barrels, October numbers already show a jump to 10m barrels — the highest since November 2013.
A narrowing of the spread between the price of Brent, the global oil marker, and WTI, the US oil benchmark, has helped bring shipments to East Coast refineries from across the Atlantic Ocean. The discount has shrunk from about $13 a barrel in March to just $3 today, as pipeline bottlenecks have eased, US refineries have burnt more crude and traders have priced in an expected slowdown in domestic production growth.
West African grades of crude oil are benchmarked against Brent.
Ehsan ul-Haq, oil analyst at KBC Energy Economics, said transportation costs from west Africa are as little as $2 a barrel, compared with as much as $12 a barrel to move shale oil from the Bakken from North Dakota to the East Coast by rail.
WTI has risen 24 per cent since hitting a six and a half year low in August, partly driven by signs of slowing US supply. The Energy Information Administration expects US production to decline from an average of 9.3m b/d in 2015 to 8.9m b/d in 2016.
More west African crude going to the US could mean less making its way to Asian refiners. India, China and others took more of these displaced barrels in recent years as US demand dried up.
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