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Nascent US oil export boom stalled by topsy-turvy market

Just as the Obama administration is starting to pull down barriers to exporting an abundance of US shale oil, the topsy-turvy global oil markets have thrown up new ones.

[NEW YORK] Just as the Obama administration is starting to pull down barriers to exporting an abundance of US shale oil, the topsy-turvy global oil markets have thrown up new ones.

The stunning 60 per cent collapse in oil prices since last summer has upended the relationship between regional markets, briefly pushing US benchmark prices above those for global Brent crude - and effectively closing the arbitrage for exporting processed condensate just as US export regulators began giving some firms the green light to press ahead.

For the moment, that's proving to be a less profitable prospect than many expected. Enterprise Products Partners , which had gained a jump on rivals with export clearance last summer, failed to award a one-year tender to sell processed condensate after a round of low bids, US and Asian trade sources said last week. "The export boom has been postponed," said John Auers, a consultant at Turner, Mason & Co in Dallas.

It's been a tumultuous period for would-be exporters. Just a few months ago, dozens of producers were locked in a federal queue waiting for confirmation that they could press ahead with sales of lightly processed shale condensate. In late December, US regulators began giving some firms such as Royal Dutch Shell the green light to go ahead.

But as oil prices collapsed, some who secured the sought-after exemption from the four-decade-old export ban are finding it more difficult to find buyers for their crude.

Last month, Conoco Chief Executive Ryan Lance told reporters that the company was seeking permission to export condensate, but acknowledged that now might not be the right time to export condensate.

The advantage for sending condensate to Asia has been closed since a cargo was sold to Shell Singapore for October loading. The US-Asia route was uneconomical because of high freight and cheaper Mideast alternatives.

Since then, sellers have been focusing their efforts on Europe with several cargoes loading since November sent to Rotterdam and France, according to traders.

Some analysts say the current inversion in prices is likely to be short-lived. As US oil stockpiles begin to fill with surplus crude, and Opec is showing no signs of cutting it output, the pressure on domestic markets will soon intensify - re-opening a profitable arbitrage to other markets.

Demand may come not only from traditional refiners and petrochemical firms in Asia and Europe, but from heavy oil producers like Mexico that want to blend the ultra-light US oil with their own production. "I think this is a transitional period," says global commodities strategist Ed Morse at Citi. "The dynamic is there to have an open arb on a pretty permanent basis." Others say the economics may be diminished for years.

As the lowest oil prices in six years are expected to halt the US shale boom by the middle of this year, the four-decade-old export ban - at the forefront of the minds of oil producers and lawmakers last year - has become less relevant, likely easing the pressure from energy producers. "The pressure on Washington to change export policy is going to change in current market conditions," Auers said.

He says the anticipated flood of crude oil exports has been pushed back by up to four years to 2018-2019, when US oil production may resume its march toward over 10 million barrels per day (bpd).

Until then, Washington may be able to maintain its decades-old policy as producers see little economic advantage to be gained from lobbying for change.

Enterprise has boosted exports of US condensate to 40,000 bpd after signing two annual contracts with Petro-Diamond Singapore and Vitol.

Analysts forecasting output in the middle of last year, before oil prices crashed, said condensate exports could reach up to 300,000 barrels a day by the end of the year, and double in 2015.

Now, those figures have declined as analysts mark down expectations of new US supply, which had been running at some 1 million bpd for the past three years. "We think that the rate of growth by the end of this year is going to be zero, which makes the whole crude export issue much less substantively relevant than it was six or 12 months ago,"said Pavel Molchanov, an energy analyst at Raymond James.