U.S. crude exports to Europe expected to fall in Jan as shipping economics weaken

(Corrects paragraph 5 to reflect crude stocks at Cushing were last at 23 million barrels, not total US crude stocks)

U.S. crude oil exports to northwest Europe are likely to slip early next year after hitting a record high in November, as the arbitrage for transatlantic shipments has slammed shut and freight rates have climbed, analysts said this week.

The spread between U.S. West Texas Intermediate (WTI) crude and Brent futures has narrowed to a discount of around $3.40 per barrel over the last two sessions, the smallest closing spread since October 2023. A narrower spread makes it less economic to ship barrels from the U.S. across the Atlantic.

"A discount of $4, in my opinion, is always the line in the sand between a big export number versus a small export number," said Bob Yawger, director of energy futures at Mizuho.

The tighter spread comes as freight rates have increased and inventories in the U.S. have fallen.

Crude stocks at the key storage hub in Cushing, Oklahoma - have dropped to 23 million barrels, their lowest mid-December level in 17 years.

The decline in stockpiles means U.S. barrels are being priced to stay at home.

At the end of November, the WTI/Brent spread had widened to roughly $4.50 per barrel, encouraging more flows across the Atlantic Ocean to higher priced markets and driving U.S. crude exports higher.

But the spike in flows may be short lived. Freight rates for moving barrels from the U.S. Gulf Coast to northwest Europe have climbed roughly $1 from November to around $3.80 per barrel this month, according to data from commodity pricing firm Argus.

The narrowing WTI/Brent spread contributed to those higher freight rates which are being used to price shipments for late January arrival, according to Sparta Commodities analyst Neil Crosby.

"We would expect more limited U.S. to Amsterdam-Rotterdam-Antwerp flows in the short-term to emerge," Crosby said.

The inclusion of WTI Midland crude in the dated Brent index has meant that the spread between the two is increasingly correlated to freight rates, as the price of Dated Brent is set by WTI Midland on many trading days.

U.S. exports bound for Amsterdam-Rotterdam-Antwerp hit a record high of 771,000 barrels per day (bpd) in November, according to data from ship tracker Kpler. WTI priced at a steeper discount than $4 against Brent through most of October, according to LSEG, when those cargoes would have been booked, making those transatlantic flows more profitable.

(Reporting by Georgina McCartney and Arathy Somasekhar in Houston, Enes Tunagur in London; Editing by Liz Hampton and Sonali Paul)