Analysis: U.S. fuel export surge gives refiners surprise summer blockbuster

Fri Jul 19, 2013 12:21am EDT
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By Anna Louie Sussman and Jonathan Leff

NEW YORK (Reuters) - In the middle of July, U.S. refiners are normally doing a brisk business selling their fuel close to home, revving up output to meet peak driving demand.

This year, however, they are in the midst of an unprecedented summer surge in exports of gasoline, diesel and other fuels, as the combination of cheaper shale crude and record-high biofuel credit costs open up new markets overseas.

Refiners like Valero (VLO.N: Quote) and traders like Vitol VITOLV.UL have raced this month to book more than 77 tankers to ship fuel from the U.S. Gulf Coast to Africa, Argentina and even Asia, nearly surpassing total bookings in all of July last year, according to data from shipbroker Charles R. Weber Company Inc.

It will be months before the full scale of the export boom becomes clear in official U.S. data, but it is already helping sustain a sharp run-up in U.S. crude oil prices to their highest in 16 months. Refiners, enjoying bumper profit margins on export sales, are running their hardest since 2005, drawing down U.S. crude inventories at the fastest rate on record.

Freight rates to ship the refined products have spiked.

"The idea of having rates higher in mid-July than at the end of January - it would be like selling more ice cream in Central Park in January than in the middle of summer," said Robert Bugbee, president and director of Scorpio Tankers Inc (STNG.N: Quote), which operates a fleet of 40 clean product tankers.

The surge may also intensify debate over two U.S. energy policies that are coming under increasing scrutiny: a mandate to blend biofuel into gasoline that refiners say is driving up the cost of selling fuel domestically; and trade policies that strictly limit crude oil exports while allowing unfettered overseas shipments of refined fuel.

U.S. gasoline is for the first time starting to replace European fuel in West Africa, a major importer. Naphtha has sailed to Taiwan for only the third time in a decade. Growing Latin American economies hindered by limited refining capacity are drawing more and more fuel from the northern hemisphere.   Continued...

A LNG fuel pump nozzle at a Blu LNG filling station in Salt Lake City, Utah, March 13, 2013.REUTERS/Jim Urquhart