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US Crude Takes Longest Route to Reach Destinations

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Trade routes

Some of the common crude tanker routes are:

  • Middle East to US Gulf, Singapore, Japan
  • West Africa to US Gulf, China, Europe
  • The North Sea to Europe
  • Caribbean to US Gulf, Asia

Out of these common trade routes, the Caribbean to Asia through the Cape of Good Hope was generally considered the longest route. However, trade is taking place on a new route—US Gulf to Asia-Pacific. It’s even longer than the distance from the Carribean to Asia. In this part, we’ll see how the new trade route emerged and which tankers are used on the route.

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Ton-mile demand

Trade routes are an important factor in the crude tanker industry. A longer route means more time for vessels and an increase in ton-mile demand, which benefits companies like Frontline (FRO), Teekay Tankers (TNK), Tsakos Energy Navigation (TNP), Nordic American Tankers (NAT), DHT Holdings (DHT), and Euronav (EURN).

US crude oil exports

Prior to 2015, the US was banned from exporting crude oil. The ban was lifted at the end of 2015. However, the volume traded was modest in 2016. In 1H16, not much was exported to Asia from the US. However, shipments to Asia picked up in 2H16.

According to preliminary weekly US data, total crude exports have averaged ~0.77 million barrels per day in 2017—substantially higher than 350,000 barrels per day in the same period last year.

According to AIS tracking data, there’s a notable increase in shipments to Asia from the US. Three VLCC (very large crude carriers) loadings were recorded in January, five in February, and another five in March 2017.

China surpassed Canada as the largest foreign destination for US crude in February with 8 million barrels of US cargo.

Tankers

Higher US crude oil exports are generally positive for mid-sized tankers. Recently, the Aframax tanker completed long haul trade from US Gulf to Asia, including the historic voyage to India. Aframax demand is strengthening from reverse lightering. Crude oil exports from the US to the Caribbean market benefit Suezmax vessels.

In the future, economies of scale are needed to make US crude attractive to Asian buyers. Trade should be possible through VLCCs.

In the next part of the series, we’ll discuss the key reasons behind increased crude oil exports.

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