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U.S. asphalt costs in a four-year high on Venezuela sanctions

Patrick T. Fallon /Bloomberg

Vehicles move along freeways, Los Angeles. 

- Turkish asphalt replaces Venezuela supply after U.S. sanctions
- Road projects delayed by last year's storms pushed back again

By Jeffrey Bair, Firat Kayakiran, and Harkiran Dhillon / Bloomberg

HOUSTON/LONDON/NEW YORK
Petroleumworld 07 25 2019

Repaving America's highways costs the most in four years, thanks to an odd combination of geopolitics, Mother Nature and seismic shifts in oil markets.

The cost of asphalt has surged in the U.S., as sanctions on Venezuela cut off U.S. refiners' supply of the thick crude especially good for making the sticky tar that covers roads. At the same time, there's more demand to fix roads, after consecutive storm-filled springs pushed projects back into this summer.

Refineries along the U.S. Gulf Coast are finding it harder to make bitumen without the Venezuelan crude, according to Cuneyt Kazokoglu, an analyst at Facts Global Energy in London.

Domestic supply has slumped after key asphalt-making refineries in Louisiana, Wisconsin and New Jersey stopped producing.

Also, refiners in the U.S. Gulf are processing higher volumes of lighter crude than in the past, with ample supplies of cheaper shale oil at their doorstep. That results in more gasoline and diesel, but less heavy products like fuel oil and asphalt. With less heavy crude around, more of the bottom of the barrel is being further processed into pricier fuel for trucks and cars, leaving less for paving roads and filling potholes.

In a sign of how the global market is adjusting to the new reality, the U.S. received its first cargo from Turkey in May, and more tankers are crossing the Atlantic from Greece and Spain.

“There is a changing market element of crude quality/availability that now creates new trade flows,” Kazokoglu said. “The problem is that there is a double whammy when it comes to Venezuela. The U.S. was not only importing crude from Venezuela, but also bitumen, albeit very low levels in recent years.”

One ton of asphalt -- enough to cap less than a foot of a four-lane highway -- costs about $530 in Kansas City, Missouri, according to data from Argus Media. The city's average $80 per ton premium to asphalt at the Gulf Coast refining hub so far this year is double what it was during the past two years, the data shows.

The 12 months ending in April were the contiguous U.S.'s wettest yearlong stretch on record, according to the National Centers for Environmental Information. Rain across the Midwest and Great Plains delayed crop planting, closed oil refineries, flooded streets and snarled Mississippi River traffic.

“From talking to contractors, we can count 20 to 30 days of work lost due to rain events,” said Dale Williams, executive director of the Missouri Asphalt Pavement Association. “That means the schedule will have to go later into the fall, and you will probably see some six-day weeks or a few hours added to shifts here or there.” Three asphalt terminals serving the Missouri market were flooded, according to Williams.

Demand this year also is supported by the rescheduling of highway work that was delayed by storms last year, said Carter Ross, a spokesman with the National Asphalt Paving Association.

Rain interfered with the movement of asphalt to market this year, trimming stockpiles at the end of the supply chain, said Brent Thielman, a construction sector analyst at DA Davidson & Co. in Lake Oswego, Oregon.

Even as the U.S. brings in more supply from abroad, there's plenty of asphalt standing close by, just north of the border.

“Even if we are to assume that domestic asphalt production is to go down amid lighter crude runs, Canada would likely fill in that shortage,” said Emmanuel Belostrino, a crude analyst at Kpler in Houston.




Story by Jeffrey Bair, Firat Kayakiran, and Harkiran Dhillon from Bloomberg.

bloomberg.com/ 07 24 2019

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