US crude on tap — but who’s buying?

Tugboats berth an oil tanker at Qingdao port in China. US crude exports to China have fallen by more than two-thirds due to the trade war and economic weakness worldwide. (AFP)
Updated 20 August 2019

US crude on tap — but who’s buying?

  • US crude oil exports have surged to more than 3 million barrels per day since a 40-year ban on the practice was lifted in 2015

NEW YORK: Two long-awaited pipelines out of the busiest US shale patch started shipping oil to Gulf Coast export hubs last week — just as US crude barrels suddenly do not look all that attractive to buyers around the world.

The two lines, which run from Texas’ Permian region to the US Gulf Coast, alleviate bottlenecks that prevented oil from getting to the coast amid a surge in US exports. Still, due to a series of factors in global oil markets, the increased access to the Gulf is making US exports less competitive, if only temporarily.

US crude oil exports have surged to more than 3 million barrels per day (bpd) since a 40-year ban on the practice was lifted in 2015. But global buyers still use the US crude benchmark, delivered to and priced at Cushing, Oklahoma, nearly 800 km from the coast — as an arbiter of whether it is attractive to buy US barrels. Right now, it isn’t.

The primary motivator for buying US barrels is the discount on Cushing-based West Texas Intermediate (WTI) to the international Brent benchmark. That spread was more than $11 in late May, making for a wide arbitrage that shippers took advantage of by purchasing barrels in Texas and selling them into Europe or Asia.

That spread has since collapsed to just under $4 a barrel, and the new pipelines are part of the reason. Because Permian oil producers are now sending those barrels to the Gulf, the reduced flow to Oklahoma is boosting the price of Cushing futures. In addition, Midwest refineries have been running at near full capacity, and they source barrels mainly from Cushing.

Adding supply to the Gulf Coast has made prices there cheaper — by some measures. The premium on oil delivered at East Houston, called MEH, in comparison with US futures delivered to Cushing has declined, but the overall narrowing in the WTI-to-Brent spread has canceled out that move.

The spread between MEH and international benchmark Brent has contracted to near its tightest since May as Brent has also weakened due to recent muted buying in European markets.

“Export arbs, like MEH-Brent, have compressed to levels that discourage exports. We think export arbs will likely need to widen out going forward in order to help clear rising supplies of US tight oil,” Bank of America Merrill Lynch analysts said in a note.

Pipeline operators Plains All American Pipeline and EPIC Midstream Holdings have begun commercial deliveries on lines that can carry over 1 million bpd of oil to the Gulf Coast from West Texas.

The new pipelines have also pushed the price for West Texas Intermediate (WTI) at Midland — the heart of the shale region — to its highest level since February, making it less profitable to ship to Cushing.

As a flood of oil arrives at the coast instead of at Cushing in coming months, it may further narrow the spread between US and Brent futures, dealers said. That would hurt exports as well. US crude exports in the week ended Aug. 2 fell to a 10-month low of 1.87 million bpd, according to government data, before rebounding a week later.

US exports may also be sliding due to the effects of the US-China trade war and economic weakness worldwide. US crude exports to China through May averaged 108,000 bpd, compared with 350,000 bpd for the same period last year, according to US government data.


UBS fined $51 million by Hong Kong regulator for overcharging clients

Updated 11 November 2019

UBS fined $51 million by Hong Kong regulator for overcharging clients

  • Hong Kong regulator’s investigation exposed ‘serious systemic internal control failures’ at the bank
  • In March, the Securities and Futures Commission banned UBS from leading initial public offerings in Hong Kong for a year

HONG KONG: Swiss bank UBS was fined HK$400 million ($51.09 million) by Hong Kong’s securities regulator for overcharging up to 5,000 clients for nearly a decade, the watchdog said on Monday.
The Hong Kong Securities and Futures Commission (SFC) said in a statement that an investigation found UBS had overcharged clients on ‘post-trade spread increases’ and charges in excess of standard disclosures and rates between 2008 and 2017.
THE SFC said the investigation exposed ‘serious systemic internal control failures’ at the bank. UBS had failed to disclose conflicts of interests and had overcharged some clients in ‘opaque’ trades, it said.
The overcharging affected 5000 Hong Kong managed client accounts in about 28,700 transactions, it said.
UBS has also agreed to repay the clients HK$200 million, the SFC said.
The regulator said the over-charging occurred in the bank’s wealth management division on bond and structured notes transactions.
UBS was found to have increased the spread charged after the execution of a trade without the clients’ knowledge, it said.
In the statement, the SFC said UBS was also found to have falsified some account statements which were issued to financial intermediaries who were authorized to trade for the clients to “conceal the overcharges.”
UBS said the issues were ‘self-reported’ to the SFC and the results found were against the bank’s standard practice.
“The relevant conduct predominantly relates to limit orders of certain debt securities and structured note transactions, which account for a very small percentage of the bank’s order processing system,” the bank said in a statement.
SFC chief executive Ashley Alder said while each “overcharge represented a fraction of each trade” the bank’s “misconduct involved decisions and a pervasive abuse of trust resulting in significant additional revenue for UBS to which it was not entitled.”
In March, the SFC banned UBS from leading initial public offerings in Hong Kong for a year after it found the bank, and some of its rivals, had failed to carry out sufficient due diligence on a number of deals.
UBS was fined HK$375 million while Morgan Stanley was fined HK$224 million, Merrill Lynch HK$128 million and Standard Chartered (StanChart) HK$59.7 million, all for failures when sponsoring, or leading, public market floats.