Oil grades hold steady as Gulf output resumes and freight stays high

what happened

Oil grades were little changed on Monday, Newsmetry API reported. Offshore production in the Gulf of Mexico began moving back toward normal after a hurricane, while market participants monitored elevated freight charges that have weakened export demand. The Marine Minerals Administration said about 604,503 barrels per day, equivalent to 29.6% of Gulf of Mexico production, was offline on Monday. Five platforms and one rig were still evacuated.

The daily charge for chartering a supertanker to move US crude to China declined late last week after reaching a record, according to Baltic Exchange data. The rate fell to $634,974 per day on Friday, its first drop since September 8. On October 8, it had reached $637,675, the highest daily reading for the route since the exchange began recording it.

Heavy crude grades in the Americas had traded at wide discounts in recent days because expensive shipping constrained exports, while US refiners were operating close to their limits. The West Texas Intermediate discount to Brent was broadly unchanged on Friday. A larger arbitrage spread generally encourages exports; a smaller one makes overseas shipments less attractive.

OPEC Secretary General Haitham Al Ghais said on Monday that the group had reduced its estimate for oil-demand growth this year to 400,000 barrels per day, down from 1.4 million bpd at the beginning of the year. November Light Louisiana Sweet (WTC-LLS) rose 7 cents to a $3.00 premium midpoint over US crude futures, with bids and offers at premiums of $2.80–$3.20. Mars Sour (WTC-MRS) fell 60 cents to a $2.25 premium midpoint, with a $2.00–$2.5 range. WTI Midland (WTC-WTM) lost 15 cents to a 45-cent premium midpoint, quoted between 30 and 60 cents. West Texas Sour (WTC-WTS) declined 10 cents to a $2.05 discount midpoint, with the discount ranging from $2.25 to $1.85. WTI at East Houston (WTC-MEH), also called MEH, traded at an 80-cent to $1.10 premium. ICE Brent December futures gained $1.93 to settle at $106.65 a barrel on Monday. November WTI futures were unchanged at $93.74. The Brent/WTI spread (WTCLc1-LCOc1) narrowed by 1 cent to the last trade at minus $13.70, after reaching minus $13.43 at its high and minus $14.17 at its low.

why it matters

The update highlights two competing forces for US crude flows: the return of offshore supply after the hurricane and freight costs high enough to curb the export economics to China.

instruments