Texas Oil Surge: As the curtain falls on 2023, a torrent of Texas oil is making its way to global markets, driven by record U.S. production and a savvy avoidance of a hefty year-end tax bill on inventories.
U.S. crude exports, predominantly departing from the bustling U.S. Gulf Coast, have averaged a staggering 4 million barrels per day (bpd) this year, surpassing last year’s record by about 500,000 bpd. The current discount of U.S. West Texas Intermediate crude, sitting at roughly $4.50 per barrel compared to the global benchmark Brent, is adding a splash of allure for European and Asian refiners.
Analyst Matt Smith from ship tracking firm Kpler notes that flows destined for Asia, especially those bound for the lucrative Chinese market, are poised to wrap up the year on a robust note.
Recent weeks have seen a 1.2% dip in U.S. Gulf Coast crude inventories, settling at 247.9 million barrels—a three-week streak of declines, partly attributed to robust exports. Storage utilization along the coast stands at approximately 63% of total working capacity, a tad below the average in previous years. Another catalyst for this oil exodus is an impending end-of-year tax on stored oil in the Texan realms.
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Kpler’s Smith anticipates that U.S. crude exports will rev up to an average of around 5 million bpd in the closing fortnight of the year, fueled by the tax consideration nudging barrels out of the Gulf Coast.
For those unable to navigate barrels through water routes, an alternate strategy involves shipping oil to locales with more favorable tax rates—cue the substantial storage hub in Cushing, Oklahoma. Oklahoma boasts a tax rate of approximately 1%, a stark contrast to Texas, where rates hover between 2.50% and 2.75%, courtesy of insights from energy research firm Energy Aspects.
Noteworthy is the eight-week upward spiral in inventories at Cushing this month, ballooning from 21 million barrels to an impressive 30.8 million barrels. The confluence of oil dynamics and tax maneuvering is scripting the final weeks of the year for the Texas oil market.