U.S. refiners gobble up foreign crude

Posted by Joseph R Fonseca

Global oil producers pumping out crude have found particularly willing buyers lately in the United States, where refiners have reaped short-term benefits from buying foreign crude.

Some question whether refiners are being strategic in their buying, piling up a surplus in advance of a potential border tax on imported crude.

Analysts suspect it is due more to normal seasonal patterns.

Michael Wittner, global head of oil research for Societe Generale, noted that the possibility of a border tax on imports has prompted some traders to buy options on crude futures to protect against higher prices in 2018. But he added that this step is more difficult in the physical market, where refiners face higher costs and logistical hurdles to store crude for the long haul.

U.S. imports of crude in January surged to 3.83 million barrels a day, the highest four-week average since August as record volumes were delivered from Canada, and the largest shipments from Saudi Arabia since August arrived.

Shipments from the Organization of the Petroleum Exporting Countries surged in December, as a last hurrah ahead of cuts from the cartel that began in January.

"These guys sprinted into the end of the year and pushed out as much crude as they possibly could," said Matt Smith, director of commodity research at ClipperData. Some producers, like Nigeria, raised output after previous supply disruptions, boosting U.S. imports of the grades.

U.S. buyers also opted for more foreign crude in late 2016 prior to the OPEC cuts, as it was relatively more affordable. Agreements to ship crude struck ahead of the output cuts may have resulted in higher imports through December and January, said Wittner.

U.S. crude imports often ramp up from January to May, as refiners gear up to satisfy seasonal gasoline demand.

The benefits from foreign crudes faded as OPEC's output cuts have already shifted the market structure. Any U.S. border tax that may be imposed would probably take a further toll.

Refiners have said they are reviewing the potential tax, and are looking at keeping their crude slates able to run the most economic grades of crude possible.

Without legislation on the table yet, they said it is premature to speculate about such a policy.

"Right now there's a skeleton out there that they're trying to put flesh on and we don't know exactly what is going to look like," said Joe Gorder, chief executive officer of Valero Energy Corp, the largest U.S. refiner.

(Reporting By Jessica Resnick-Ault; Additional reporting by Jarrett Renshaw; Editing by David Gregorio)

Feb 4, 2017

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