U.S. energy group Enterprise and oil trader Vitol raced to exploit the end of a 40-year ban on most U.S. crude exports, the first of many firms eager to "stress test" last week's historic opening.
Despite a sudden change in global oil market conditions that many oil traders say has eliminated the economic advantage of shipping domestic crude far abroad, some companies that have long lobbied for the change in policy may be eager to show that their effort was not in vain, according to some experts.
Houston-based pipeline group Enterprise Products Partners LP (EPD.N) said in a statement it will provide pipeline and marine terminal services to load a 600,000-barrel cargo of domestic light crude oil scheduled for the first week of January.
An Enterprise spokesman said that the cargo belongs to Vitol [VITOLV.UL], which will decide on a delivery destination. A spokeswoman for Vitol could not immediately be reached for comment on where the oil was going. The company did not provide any details on the pricing of the cargo.
"We are excited to announce our first contract to export U.S. crude oil, which to our knowledge may be the first export cargo of U.S. crude oil from the Gulf Coast in almost 40 years," said A.J. "Jim" Teague, chief operating officer of Enterprise.
Some oil traders expressed surprise at the news, saying that with the U.S. crude futures contract trading consistently above Brent for the first time since the shale era began five years ago, exports of most varieties would not be economical.
Even so, others are queuing up. Pioneer Natural Resources (PXD.N), an independent producer that along with Enterprise received the green light from the U.S. government last year to ship a lightly processed form of ultra-light crude to test the ban, expects to commence exports by mid-2016, it said in a statement.
"The company has been actively working with its midstream partners to secure export facilities along the U.S. Gulf Coast, which will maximize the company’s crude marketing flexibility going forward," the statement said, adding that Europe, Asia and Latin America are potential markets for U.S. crude.
On Friday, Congress passed and President Barack Obama signed into law a $1.8 trillion government spending and tax relief bill that included repealing the four-decade-old export ban, which barred shipments to countries other than Canada. The Department of Commerce issued an official notice on Tuesday saying companies no longer need to apply for licenses to export crude.
In the coming weeks, companies are likely to "stress test" where export opportunities will be, said George Baker, executive director of the Producers for American Crude Oil Exports, which led the successful lobbying effort in Washington to lift the ban.
Pressure from oil producers to scrap the restrictions intensified over recent years, as U.S. crude oil prices plunged to as much as $25 a barrel below global prices due to a build-up of swelling U.S. shale production caused by infrastructure bottlenecks as well as the export ban.
But that gap has vanished in recent weeks amid growing evidence that U.S. production has shifted into reverse this year as plummeting prices caused drilling to dry up, while output overseas is still swelling, with Iran poised to increase sales as sanctions are lifted next year.
On Wednesday, U.S. oil futures CLc1 were trading at a premium to global Brent LCOc1 all the way to June. [O/R]
Jacob Dweck, an attorney with law firm Sutherland that represents oil producers, said some producers and shippers "are interested in flying the flag of exports ... They want to create the new reality of exports."
But analysts said even if a handful of companies announce deals in coming weeks, it does not signal a bigger trend.
"It’s universally agreed in the short term that we won’t see a flood of ships leaving for foreign ports because the economics aren’t right," said Sandy Fielden, director of energy analytics at RBN Energy.
(Reporting by Valerie Volcovici in Washington and Catherine Ngai in Toronto; additional reporting by Liz Hampton in Houston, Timothy Gardner in Washington and Amrutha Gayathri in Bengaluru; Editing by Jonathan Leff and Matthew Lewis)