US exports had been a major contributing force to increasing cargo mile demand prior to the pandemic. But the US/China trade war coupled with output cuts had weighed on this long-haul originator.
However, two noteworthy items point to an end for these headwinds.
First, US output cuts have ceased and even reversed. In May, U.S. crude oil production reached a two-and-a-half-year low of 10.0 million b/d. Since then, U.S. production has increased mainly because tight oil operators have brought wells back online in response to rising prices.
But we must still deal with the impact of previous E&P cuts which should keep output growth subdued until mid to late 2021, meaning well depletion vs. completions will come into play. Nevertheless, the damage to the long haul out of the US appears to be over and in a correction phase (albeit a slow one for a bit).
Second, and by far the most exciting, is the return of US/China trade. This isn’t just speculation at this point, it’s happening.
Let’s look at the recent shift more closely. Up till recently, the US/China crude trade was struggling for relevance. According to VesselsValue, from October 1, 2019 through April 30, 2020 the US to China route posted only 12 total voyages, which wasn’t even enough to put it in the top 150 routes over that period of time. This once burgeoning trade lane had been reduced to a total of 20.09 bn MT-NM (billion metric tons-nautical miles) over that time.
But from the start of May 2020 until now we have seen a dramatic return with 53 voyages booked representing a total of 175.543 bn MT-NM. This puts it in the 24th spot in terms of voyages booked and the 19th spot in terms of cargo miles traveled.
For the US to China route, June, July, August, and September of 2020 surpassed all previous peak months (which were found in 2018) in terms of cargo miles traveled. We aren’t just seeing a return of the US to China route; we are seeing growth beyond that. October looks to be on pace to maintain this trend which has seen long haul US crude take market share from other suppliers.
To be sure, China’s buying so far is a long way from fulfilling commitments made in the Phase 1 trade deal – but it must start somewhere. As part of a deal, Beijing agreed in January to buy $52.4 billion worth of oil and liquefied-natural-gas from the U.S. by the end of 2021. The buying was delayed by the outbreak of the C19 pandemic but has ratcheted up more recently.
Petro-Logistics Chief Executive Daniel Gerber. told the WSJ, “The Chinese had to catch up (and) that is now upending traditional oil-trade routes world-wide.”
The big winner in all this could very well be that long haul out of the USA, and that winning may be starting soon.