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U.S. Crude Returns To Premium Over Brent, Slamming Shut Export Window

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U.S. crude futures jumped to a premium over Brent for the first time in six weeks on Thursday, slamming shut a brief window to ship some of the nation’s excess supply abroad just months after the four-decade on crude exports ended.

The U.S. West Texas Intermediate crude benchmark traded as high as 23 cents over Brent futures, the first premium since Jan. 26 CL-LCO1=R, and up from a discount of as much as 71 cents a day earlier.

The gains came as front month prices jumped to their highest this year, spurred by a weak dollar and hopes major producers will agree a deal to freeze output next month.


Some traders also attributed Thursday’s rally to rising exports after Venezuela’s state-run oil company PDVSA launched one of its largest oil tenders ever, to buy 8 million barrels of light crude from either the United States or Nigeria between April and June.

The volume would amount to nearly 90,000 barrels per day (bpd) of oil.

“People are realizing that exports for March and April are going to be big,” said Dominic Haywood, an analyst with Energy Aspects.

U.S. oil exports recently gained traction, as premium international prices, coupled with a deep discount for prompt barrels versus those in the future, incentivized traders to fix U.S. cargoes to Asia, Europe and Latin America.

The discount for prompt futures relative to the forward month, a structure known as a contango, also narrowed to $1.33 a barrel CLc1-CLc2 on Thursday, its tightest since late January and up from nearly $3 a barrel in mid-February.

Together, the wider contango and arbitrage help cover the cost of exporting U.S. oil foreign markets.


Exports of light sweet crude to destinations in Japan, Panama and Europe have also been recently announced and Enterprise Products Partners in February said it expected to export 6 million barrels of crude and condensate from its Gulf Coast facility in March, double its exported volumes in February.

But higher prices could lure in a fresh wave of imports, particularly as refiners turn to West African (WAF) and North Sea cargoes amid falling U.S. production.

“The fall in domestic production is starting to drive spreads, with the market realizing that not only have production declines been going on for a while, but they are now starting to accelerate,” said Paul Horsnell, head of commodities research at Standard Chartered in London.

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