[NEW YORK] The quantitiy of West African crude oil arriving in the United States is the largest in more than two years as it makes its way back into the market after the shale oil boom, according to Reuters shipping data and trade sources.
But the flow - which surpassed 430,000 barrels per day (bpd) in April - is undercutting oil prices in the US Gulf, threatening to send cargoes east and weaken the dated UK North Sea Brent benchmark, traders warned.
US arrivals from West Africa hit 13 million barrels in April, and are expected to rise to at least 13.4 million barrels in May, according to Reuters shipping data.
The cargoes were booked to sail west just as the discount of US crude oil to dated Brent CL-LCO1=R , on which African crude is priced, narrowed to close to parity after the United States lifted its decades-long ban on oil exports.
This enabled African oil back into its formerly reliable outlet, which it was pushed out by the shale boom and the export ban that kept the US market for oil unusually cheap.
A rush to produce gasoline - US consumption hit a seasonal record in February of 9.2 million bpd according to monthly EIA estimates published Friday, also helped. "A lot of US refiners are looking to increase their gasoline production relative to diesel," said Sandy Fielden, an analyst at RBN Energy. "(West African) crudes, especially the Nigerian crudes, are gasoline rich." But traders warned that this very flow undercut prices in the United States, encouraging the country to export and making its oil more attractive to buyers elsewhere.
The discount of US crude to Brent hit a two-month high last week. "Higher crude values in Europe and other regions will lead to higher US exports," said Ehsan Ul-Haq, principal consultant with KBC in London. "Europe will be happy to get crudes such as Louisiana Light Sweet (LLS), which are middle distillate-rich." Gulf Coast cash prices fell to multi-month lows. LLS, which is the US Gulf Coast sweet benchmark WTC-LLS , traded at around a 90 cents a barrel premium to WTI futures on April 22, the weakest since mid-January.
Mars Sour WTC-MRS , which is the US Gulf Coast sour benchmark WTC-MRS , traded at around US$4.60 a barrel discount to WTI on April 21, the weakest since the end of March. "Cargoes going to the United States can push barrels out,"one trader said. "It's not a steady flow anymore."