The Marshall Islands -- Yes, It's All About Oil -- August 12, 2016

Updates

August 16, 2016: EIA -- US crude oil exports are increasing and reaching more destinations. This will most likely be on OPEC's September meeting agenda.
 

Original Post

 

This is quite a story. John Kemp started tweeting about it a few days ago. The Marshall Islands has become the 5th "largest" destination for US exported oil.

Here's the story:

Best known for diving, lagoons and the island that gave the world the name for the bikini swimsuit, the Marshall Islands is now gaining attention as a top-five destination for U.S. crude exports despite the lack of a refinery to process the oil.

The shipments to the Marshall Islands, a tiny atoll nation in the middle of the Pacific Ocean, are a quirk of U.S. regulations, providing a vivid example of how traders carry out arbitrage opportunities and how fuel is supplied to some of the world's most remote regions.

Since the removal of restrictions on exporting U.S. crude in December 2015, the oil has gone to a rising number of countries, with an average monthly volume of over 500,000 barrels per day (bpd).

Among the top takers of U.S. crude are the Netherlands, Japan and Italy. But, ahead of France, at number five comes the Marshall Islands.

"The Marshall Islands... is the fifth-largest non-Canadian destination for U.S. crude oil exports in 2016, averaging 14,000 barrels per day," the EIA said.

They are an unlikely destination for crude exports, with a population of 50,000, located in the middle of the Pacific to the west of Hawaii and to the east of the Federated States of Micronesia.

The Marshalls are best known for being a major shipping registry, a diving paradise, and for the Bikini Atoll where dozens of U.S. nuclear bombs were tested in the 1940s and the 1950s. French designer Louis Reard used the island's name for his two-piece swimsuit that he released in 1946 to capitalize on the explosive connection.

The EIA says that the U.S. oil is unlikely to remain in the Marshall Islands.

There are no refineries in the Marshall Islands.

I think this is the real reason:

Traders said that the Marshall Islands were also being used to comply with U.S. regulations requiring exporters to specify a destination for their goods, even if in some cases the final destination changes en route due to arbitrage opportunities.