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Oil export law forces jump in tanker rates

– Oil tankers that move crude between U.S. ports are reaping windfall profits as domestic production surges and American laws prohibit exports.

Rates for Jones Act tankers, the only kind permitted to haul domestic fuel cargoes, jumped 87 percent to $85,978 a day in the past year, and the average cost will reach a record in 2013, according to Poten & Partners, the New York-based maritime consultant. The largest owners include Overseas Shipholding, which sought bankruptcy protection in November, and American Petroleum Tankers Parent, a company controlled by Blackstone Group funds.

Extraction of oil from shale formations in the United States helped increase output to 6.2 million barrels a day in 2012, the most since 1998, cutting imports. That’s boosting coastal shipments as oil companies move crude to domestic refineries because the world’s second-largest energy-consuming nation prohibits exports of most crude. The Jones Act bars foreign ships from the trade.

“The increase in U.S. crude production is ultimately what’s driving the demand,” analyst Erik Nikolai Stavseth at investment bank Arctic Securities, said by phone from Oslo, Norway, on Feb. 7. “The situation won’t change for as long as the law exists.”

Rates for single-voyage charters averaged $98,947 a day this year, compared with an average of $55,947 through 2012, which was the highest in data stretching back to 2001, according to Poten.

Almost all the ships are locked into long-term charters, so there are few available for additional cargoes, according to Jeff McGee, the head of marine research and consulting at Poten. The higher spot prices help owners to renew or negotiate better long-term contracts, according to Stavseth.

The output expansion is causing pipeline operators such as Calgary-based Enbridge to reverse the direction of oil conduits that once took international cargoes 500 miles inland.

The switch will bring as much as 400,000 barrels a day of crude to the Gulf of Mexico, where more than 55 refineries are located, from Cushing, Okla.

Domestic railroad shipments are also expanding. The first delivery of shale oil from the Bakken formation in the Midwest arrived this month at PBF Energy Inc.’s Delaware City, Del., refinery as rail capacity almost tripled to 110,000 barrels a day, the Parsippany, N.J.-based company said in a statement Feb. 4.

The increase in shale-oil supply is pushing up cargoes for Jones Act tankers between ports in the Gulf of Mexico, a trade that didn’t exist two years ago.