(Reuters) - Oil prices will likely be pressured rather than helped by the removal of a 40-year ban on U.S. crude exports as a global glut and limited chance of landing new buyers squeeze potential benefits, energy hedge fund Taylor Woods Capital said.
The United States is on the brink of resuming its crude exports, ending a years-long fight brought about by a boom in domestic shale output that bloated global supplies. But traders in the opaque physical crude market say they cannot find any overseas buyers in a depressed price environment.
U.S. crude CLc1 and global benchmark Brent LCOc1 have fallen from highs above $100 a barrel in June 2014 to 7-year lows under $40 now.
“At current market pricing -- where the price of domestic crude oil is trading at a premium to comparable seaborne grades -- we see potential for lower U.S. crude oil exports, higher U.S. crude oil imports and lower refinery runs in the coming months and perhaps even longer,” Taylor Woods, based in Greenwich, Connecticut, said in a note to its investors.
“In isolation, any one of these factors would come as a bearish shock to our 2016 outlook for the U.S. oil market either by increasing supply (as in the case of lower exports and higher imports) or decreasing demand (as in the case of lower refinery throughput as margins come under pressure),” said the note, seen by Reuters on Thursday.
Taylor Woods is up about 20 percent for the year through mid-December, helped by mostly bearish bets on crude since January, people familiar with its trades said. A spokesman declined comment.
The hedge fund, run by former Credit Suisse traders Beau Taylor and Trevor Woods, manages about $1 billion, taking bets in the oil, natural gas, coal, copper and aluminum markets.
The Taylor Woods note said futures of U.S. crude’s West Texas Intermediate (WTI) benchmark <0#CL:> were trading above global benchmark Brent <0#LCO:> through June 2016, even as U.S. crude inventories stood at 33 percent above 5-year averages.
Louisiana Light Sweet (LLS) crude LLS-, a U.S. Gulf Coast benchmark, has an even bigger premium to some West African and North Sea-linked crudes like Qua Iboe QUA-E. That has given traders the incentive to bring in foreign crudes rather than U.S. materials, leading to an oil tanker pileup in the Gulf of Mexico.
“At current pricing, it is more economic to land West African or North Sea grades into the U.S. Gulf Coast rather than bring WTI south via pipe,” the note said.
Reporting By Barani Krishnan; Editing by Diane Craft