Recent decline in Gulf Coast crude oil imports mainly affects lighter grades
Crude oil imports to the U.S. Gulf Coast (PADD 3) which averaged 3.7 million barrels per day (bbl/d) year-to-date through July, the latest month for which data are available, have dropped by more than a third since 2008. The decrease of more than 1.9 million bbl/d from the 2008 average of 5.6 million bbl/d has included almost all imports of light, sweet crude oil, a development that has significant implications for global crude oil price relationships. Nearly half of U.S. refining capacity is along the Gulf Coast, and imports into this region substantially determine overall U.S. crude oil import trends.
Much of the decline in imports can be attributed to the significant increase in U.S. crude production over the last five years. In 2008, U.S. crude oil production averaged 5.0 million bbl/d, the lowest level since 1946. Crude production has increased dramatically since then, due largely to the widespread application of advanced techniques combining horizontal drilling and hydraulic fracturing. Over the first 7 months of 2013, U.S. crude oil production averaged 7.3 million bbl/d. Because much of the new crude oil produced in the United States is light and sweet in quality, barrels of similar grades were the first to be backed out of Gulf Coast imports. In three major port areas in the region — Houston, Texas; Port Arthur, Texas; and New Orleans, Louisiana — combined light sweet imports dropped from a 2008-10 average of nearly 650,000 bbl/d to just over 60,000 bbl/d in 2013 through July (Figure 1).
Without a need to import significant amounts of light, sweet crude oil to the Gulf Coast, prices for grades such as Light Louisiana Sweet (LLS) have recently traded at record discounts to global benchmark Brent crude. When the Gulf Coast needed imports to balance demand for light, sweet crude, LLS traded at a premium to Brent to make it economic to ship barrels to the Gulf Coast. For the three-year period from August 2010 to July 2013, LLS traded at an average premium of $1 per barrel to Brent. However, since the beginning of August, LLS has priced at an average discount of over $3 to Brent, reaching a record discount of $11 per barrel on October 23.
In addition to reduced light-sweet crude oil imports into the Gulf Coast region, New Orleans and Houston are importing significantly less heavy crude. So far in 2013, imports of heavy crude are 405,000 bbl/d and 344,000 bbl/d lower than the 2008-10 average for New Orleans and Houston, respectively. The reversal of the Seaway pipeline (a joint venture of Enterprise and Enbridge) has contributed to the decline in imports. When Seaway started flowing oil south from the Cushing, Oklahoma, hub to the Houston area in May 2012, the pipeline had a capacity of 150,000 bbl/d. Additional pumping stations and other modifications came on line early this year, increasing flows to 400,000 bbl/d. Trade press reports that most of the crude oil now moving on the line is heavy, reducing the need for Houston-area refiners to import heavy crude. Imports of heavy crude into the Port Arthur area have remained relatively unchanged over the last five years, and even increased in 2013 versus 2012. The 2013 increase reflects the expansion of the Motiva refinery in Port Arthur, where an additional 325,000 bbl/d of crude distillation capacity became fully operational in early 2013.
Despite the downward trend in imports to the Gulf Coast region, it is unlikely that domestic crude oil will completely supplant imports. Several refineries in the area are either partially or wholly owned by national oil companies and are likely to continue importing crude from ownership countries. Since 1993, Shell's Deer Park, Texas, refinery (327,000 bbl/d) has operated as a joint venture between Shell and PMI Norteamerica SA, a subsidiary of Petroleos Mexicanos (Pemex), Mexico's national oil company. Petroleos de Venezuela S.A. (PDVSA), the national oil company of Venezuela, purchased Citgo Lake Charles, Louisiana (428,000 bbl/d), and two other U.S. refineries in 1990. And Motiva, a joint venture of Shell Oil Company and Saudi Refining Inc., a wholly owned subsidiary of Saudi Aramco, operates three refineries in the region: Port Arthur, Texas (600,000 bbl/d); Convent, Louisiana (235,000 bbl/d); and Norco, Louisiana (234,000 bbl/d). Together, these facilities import more than 1.1 million bbl/d of heavy crude oil that are unlikely to be replaced by U.S. domestic crude oil.
Gasoline and diesel fuel prices fall
The U.S. average retail price of regular gasoline decreased seven cents to $3.29 per gallon as of October 28, 2013, 27 cents lower than last year at this time, and the lowest price since December 24, 2012. Prices fell in all regions of the nation, with the largest decrease coming in the Midwest, where the price dropped 12 cents to $3.20 per gallon. The Gulf Coast and Rocky Mountain prices were $3.07 per gallon and $3.37 per gallon, respectively, both six cents lower than last week. On the West Coast the price fell a nickel to $3.61 per gallon, and on the East Coast the price was $3.32 per gallon, a decline of four cents.
The national average diesel fuel price fell two cents to $3.87 per gallon, 16 cents lower than last year at this time. Prices in the East Coast, Midwest, and Gulf Coast regions all fell two cents, to $3.89 per gallon, $3.84 per gallon, and $3.78 per gallon, respectively. The Rocky Mountain and West Coast prices both decreased one cent, to $3.87 per gallon and $4.04 per gallon, respectively.
Propane inventories fall
Total U.S. inventories of propane fell by 1.2 million barrels from last week to end at 64.8 million barrels, and are 9.2 million barrels (12.4 percent) lower than the same period one year ago. Midwest regional inventories declined by 0.9 million barrels and Gulf Coast inventories decreased by 0.4 million barrels. Inventories on the East Coast increased by about 0.2 million barrels, while inventories in the Rocky Mountain/West Coast region were unchanged from the prior week. Propylene non-fuel-use inventories represented 4.7 percent of total propane inventories.
Residential heating oil price decreases while propane price rises
Residential heating oil prices decreased by nearly 4 cents per gallon last week during the period ending October 28, 2013 to reach $3.82 per gallon. This is 19 cents per gallon lower than the price at the same time last year. Wholesale heating oil prices decreased by 9 cents per gallon, arriving at just under $3.02 per gallon.
The average residential propane price increased by 3 cents per gallon last week to reach $2.41 per gallon, 19 cents per gallon higher than the same period last year. Wholesale propane prices increased by almost 4 cents per gallon to reach $1.31 per gallon for the week ending October 28, 2013.