Jones Act tanker idles as Brent-U.S. crude spread collapses
A U.S. Jones Act coastal tanker hired this summer by Delta Air Line’s refining arm has been anchored empty for nearly two weeks in the Gulf of Mexico after weaker European crude markets reopened an arbitrage to ship oil more cheaply to the East Coast.
The 330,000-barrel vessel MR Seabulk Arctic has been waiting to load offshore of Galveston, Texas, since Sept. 26, according to shipping data available via ThomsonReuters Eikon.
Monroe Energy in recent weeks has been offering the ship in the spot market for service hauling either crude oil or clean refined fuels, according to the sources.
“Delta was supposed to move oil from Corpus Christi to Philadelphia, but now that intended trade is temporarily not economic,” said a shipping source, noting that oil companies were “caught by surprise” by the sharp change in the price of European oil.
“They can’t organize the cargoes quickly” to make use of the open vessel, he said.
Delta did not respond to a request for comment.
The rare moment of weakness in the niche market for U.S.-flagged and crewed Jones Act tankers comes as demand for the costly Gulf-Coast-to-East-Coast voyage has been diminished by the plummeting value of trans-Atlantic crudes relative to U.S. prices.
The spread between Brent and U.S. crude has contracted to nearly $2 a barrel, down from an average of over $5 in September, making it theoretically more profitable for East Coast refiners to buy North Sea or West African crude rather than pay the $4-$6 it costs per barrel to ship a 330,000-barrel Jones Act cargo from the Gulf Coast to Philadelphia.
It is an unusual soft spot in the market for Jones Act tankers, which are required by law for hauling oil between U.S. ports. Jones Act rates have doubled in the past few years as a flood of shale oil in Texas depressed Gulf Coast light crude prices, which until recently made the two-week journey to the East Coast a better deal than imports from Europe or West Africa.
This summer, Monroe Energy LLC, the Delta subsidiary that runs the airline’s 165,000-barrel-per-day (bpd) Trainer refinery, time-chartered the Seabulk Arctic, built in 1998, for $80,000 a day for a two-year term that began in August. It was the refiner’s first direct JA charter, brokers said.
The Brent-U.S. crude spread has averaged around $3.20 since Sept. 26, when the Seabulk Arctic—which had previously been ferrying gasoline to Florida from Valero—dropped anchor near the port of Corpus Christi, the throughpoint for South Texas’ abundant Eagle Ford shale oil.
The Jones Act, originally passed to protect the U.S. maritime industry, restricts passage between U.S. ports to ships that are U.S.-built, U.S.-flagged and U.S.-crewed.
It is thus far unclear how much crude may be flowing across the Atlantic as the arbitrage opens.
Follow us on social media: