Barron's : 5 Safe European Stocks With Yields Up to 5%

5 Safe European Stocks With Yields Up to 5%
European shares tend to yield more than U.S. shares. The case for Vodafone, Novartis, Nestlé, more.


By Andrew Bary
Dividend stocks are the investment du jour, but most income seekers are avoiding one of the most promising places for payouts: Europe. European shares tend to yield more than U.S. stocks, reflecting an investor preference for dividends over stock buybacks. And European markets continue to trail the Standard & Poor’s 500 index, with the Euro Stoxx 50 down 7% this year, versus a 7% gain for the S&P. Concerns about the United Kingdom’s vote to leave the European Union haven’t helped, especially for companies with sizable U.K. exposure.
Barron’s has come up with five European stocks with yields ranging from 2% to 5%: Vodafone Group (ticker: VOD), Deutsche Telekom (DTEGY), Novartis (NVS), Nestlé (NSRGY), and National Grid (NGG). We avoided some high-yield areas, such as financials and energy, where dividends could be in jeopardy.


“Our portfolio is 35% to 40% in European stocks,” says Eric Sappenfield, who manages the MainStay Epoch Global Equity Yield fund. “We seek a globally diversified portfolio of companies that can sustain and grow their distributions.” The MainStay Epoch portfolio includes Vodafone, Nestlé, and National Grid, the largest U.K. utility.
High-yielding European stocks could get a boost as European investors seek alternatives to ultralow—or negative—government bond yields. The German 10-year bond yields negative 0.10%; the U.K. 10-year, 0.50%; and the Swiss 10-year, negative 0.60%.
THE BULL CASE for European telecoms like Vodafone and Deutsche Telekom is that they trade at discounts to Verizon Communications (VZ) and AT&T (T), based on enterprise value/cash flow, and are benefiting from some improvement in admittedly competitive markets. Deutsche Telekom, Germany’s leader, is an intriguing asset play because it owns 65% of T-Mobile US (TMUS), the fast-growing and increasingly profitable No. 3 U.S. wireless company. That T-Mobile stake is now worth $25 billion, or about 30% of Deutsche Telekom’s market value.

The core Deutsche Telekom business has gotten cheaper this year. Its U.S.-listed shares, now around $17.50, are down 3%, while T-Mobile is up 20%. The Deutsche Telekom shares now yield 3.4%, less than Verizon (4.2%) and AT&T (4.4%). Deutsche Telekom pays that dividend without getting any cash from T-Mobile, which pays no dividend. As free cash flow grows at T-Mobile, it could be in a position to pay dividends in 2017, benefitting Deutsche Telekom and allowing the company to boost its payout. Deutsche Bank analyst Robert Grindle carries a Buy rating on the stock, with 23% upside to his price target.
More than just a U.K. wireless company, Vodafone is the No. 2 cellphone provider in Germany, behind Deutsche Telekom. It has wireless operations in Italy and Spain, plus exposure to the developing world with sizable businesses in India and South Africa.


The U.K. accounts for less than 10% of the estimated value of the company. The U.S. shares, at about $31, yield 4.8%. Vodafone’s first-quarter report last month showed what JPMorgan analyst Akhil Dattani called “impressive underlying acceleration in revenue growth,” with organic growth up 2.2%. He carries an Overweight rating and sees 25% upside to his target price on the U.K. shares. “Vodafone has the best wireless network in Europe,” says Sappenfield, adding that its balance sheet is in great shape as it winds down a period of heavy capital spending.
National Grid has U.K. exposure to natural gas, water, and electricity, plus a U.S. unit that controls gas and electricity distribution in New York and New England. Its U.S.-listed shares, at about $71, yield 4.4%. That’s almost a percentage point above the average U.S. utility, and its projected 2016 price/earnings ratio of 17 is slightly below the average of its U.S. peers. RBC Capital Markets analyst John Musk wrote recently that the company “has an enviable combination of predictability, asset growth, secure balance sheet, and attractive dividends,” though he downgraded the stock to Sector Perform from Outperform on valuation.
Novartis is among the most-diversified global drug companies, with a broad portfolio of prescription drugs, eye-care products, and generics. The U.S.-listed shares, now around $82, are off 20% in the past year and yield 2.8%. The weak showing reflects concerns about generic competition for Novartis’ leukemia drug Gleevec, and a slow, expensive U.S. launch for heart-failure drug Entresto.
Bernstein analyst Tim Anderson has an Outperform rating on the stock and a $94 price target. In a client note, he admitted that Novartis is a “show-me stock” and needs to hit its financial targets. The company trails in the hot immuno-oncology market and has been under pressure to “do something,” such as buy Bristol-Myers Squibb (BMY). Novartis wisely resisted that pressure, which now looks smart given the recent fallout from the failure of Bristol’s lead oncology drug in a key clinical trial.
More From Barron’s
Today’s Top 5 Stock Picks: Underpriced Growth
Google Data Should Lend Support to American Eagle
U.S. Airline Rally May Resume After Summer
Nestlé is the world’s largest food company, with a wide international portfolio and a relatively low but ultrasafe dividend of 2.4%. Food stocks have been in vogue, but Nestlé, at a recent $82, is up less than some peers because it’s not a takeover candidate. The insular giant could benefit from the appointment of an outsider, Ulf Mark Schneider, as CEO starting in early 2017. He comes from the European health-care company Fresenius (FRE.Germany).


RBC Capital Markets analyst James Jones last month listed some investor-friendly steps that Schneider could take, including selling Nestlé’s valuable L’Oréal stake, worth $25 billion; getting out of its candy business, where it lacks a market-leading position; adding debt to a conservative balance sheet; and cutting costs. Given its high credit rating, it can borrow in euros at close to zero.
DIVIDENDS ON MANY FOREIGN stocks are subject to withholding taxes. Several countries, including Germany, Switzerland, and France, impose a 15% withholding tax, while others, like the U.K., impose none. Tax expert Robert Willens says U.S. investors effectively can get back the withholding taxes through a credit on their tax returns.
Foreign taxes can’t be credited when the shares are held in an individual retirement account or other tax-advantaged account. An exception is Germany, which doesn’t impose withholding taxes on stocks held in IRAs.

>>> Weekly Update

Weekly Market Update: Risk-On Rules Despite Doubtful Data

The DJIA and the S&P500 both notched fresh all-time highs this week and the Nasdaq came very close to record levels as markets kept melting up in the August heat. Crude prices saw their second week of gains off the late July low, providing an assist to higher US equity valuations, while the dollar is gradually softening. Trading volumes were about 20% below average. In the US, decent retail sector earnings were seen, with the quarterly earnings season coming to a close. Economic data was less than stellar, with the July retail sales report flat after three months of solid gains. Both the July PPI report and the import prices data showed inflation losing steam again. The focus in both Japan and China was on the possibility of fresh central bank action to help prop up growth, while in the UK, the Bank of England had trouble finding enough bonds to purchase under its restarted QE program. For the week, the DJIA gained 0.2%, the S&P500 edged up less than 0.1% and the Nasdaq added 0.2%.

The bounce back in crude prices continued this week, with WTI reaching its 200-day moving average at around $44 and Brent back to $47/bbl. Further inventory builds in weekly crude stocks reports undercut prices midweek, but that impact was more than offset after OPEC confirmed that its member would hold an informal meeting in Algiers on the sidelines of an energy forum on Sept 26-28, consolidating talk that Russia, Saudi Arabia and Iran might be able to set aside their differences and put in place some sort of production ceiling.

Economic data out of China further called into question the ability of Beijing to meet even the +6.5% low end of its 2016 growth target. July industrial production and retail sales growth decelerated, while new bank loans fell significantly in July from the prior month and widely missed expectations. Pressure is building on the PBoC to further ease policy, but the central bank has stalled and simply repeated its standing promise to keep policy slightly loose to meet growth targets. Once again, repeated reports made it clear that very high debt levels across the economy and murky bank balance sheets are making policy-makers very nervous about asset bubbles. With that in mind, regulators this week ordered a large-scale review of the nation's banking system, including inspections of deposits, outstanding loans, interbank business and bonds.

Last month, the Bank of Japan launched a comprehensive review of its policies in the era of Abenomics. Reports circulating this week suggest a preliminary outline of the review has identified sharp declines in oil prices, a prolonged hit to growth from the 2014 sales tax hike and the nation's inability to shake off its deflationary mindset as the main obstacles to achieving its 2% inflation target. Analysts were quick to point out the BoJ is only blaming external factors for disappointing inflation gains, and appears to have avoided a frank reckoning with the implications of its own policy decisions. In any case, the BoJ is expected to announce a big new easing plan next month to complement the government's latest stimulus package. Markets expect the bank to change the parameters of the inflation target, cut rates further and possibly expand asset purchases.

In an ominous sign for ambitious quantitative easing programs across the globe, the Bank of England's restart of QE bond purchases ran into trouble on its second day, as it failed to find enough sellers of bonds. The first auction on Monday went off without a hitch, but on Tuesday the bank fell £52 million short of its target to buy £1.17 billion in long-dated government debt. The BoE issued a statement asserting that would be able to make up the shortfall later this year, but with lower and lower yields forcing funds and other investors to hold more and more bonds to maintain returns, it appears that the bank has a real problem on its hands. In the wake of the failed BOE operation, the 10-year gilt yield touched a record low of 0.55%, while the bund yield dove to -0.16%, within range of the all-time low of -0.20% seen in early July. Separately, BoE hawk McCafferty acknowledged that further easing will likely be necessary to further cushion the shock of the Brexit vote on the UK economy.

On Thursday, the Reserve Bank of New Zealand (RBNZ) met expectations and cut rates to new record low of 2.00%. This is the bank's sixth policy easing since 2015, and analysts expect the RBNZ to cut at least one or two more times, bringing the rate to 1.50%. The policy statement added a focus on house price inflation becoming "more broad-based across the regions, adding to concerns about financial stability." As for headline inflation, the statement foresees growth resuming in Q4. The RBNZ specifically stated that "further policy easing will be required" to get inflation to the middle of its target range.

Bank of Korea remained at 1.25% for the second straight month after a surprise rate cut earlier this summer, though expectations of more easing down the line have been sustained after BoK Governor Lee acknowledged the continuing strength of the currency. Also note that South Korea's credit rating was increased to AA from AA- by Standard & Poor's, which cited the nation's steady economic performance, sound fiscal position and flexible fiscal and monetary policies.

Shares of Delta Airlines fell as much as 4% from last Friday's close after a major system-wide network outage massively impacted its flights worldwide. The computer problem was caused by a power outage at its headquarters in Atlanta. The airline cancelled nearly 2,000 flights Monday to Wednesday, and there were further technical issues even after the systems were brought back online, which slowed down the recovery process.

The judge overseeing the review of the Aetna/Humana merger said the trial would begin on November 7th, favoring requests from the Aetna/Humana team. The DOJ had moved for the trial to be held in 2017. This comes just a week after the court agreed to separate consideration of the Aetna/Humana and Anthem/Cigna mergers into two separate trials. The judge in the Anthem/Cigna case said that trial would start by late November, but that she would not likely rule until early next year.

After a week of rumors, Walmart confirmed it reached a deal to acquire online retailer Jet.com. Walmart will pay $3 billion in cash plus about $300 million of Walmart shares for the site. The two operations will maintain separate branding for now, and the deal is expected to greatly boost Walmart's attempts to compete with Amazon. Walmart has generated about $14 billion in annual e-commerce sales, compared with Amazon's annual run rate at over $100 billion.

>>> Baupost Group (Seth Klarman) discloses updated portfolio positi


Baupost Group (Seth Klarman) discloses updated portfolio positions in 13F filing: new CASC position (previously disclosed), new OZM position, closed out GNW position (KERX position approx unchanged)

 Highlights from 2016 Q2 filing as compared to 2016 Q1 filing:

  • New positions in: CASC (~25 mln shares), OZM (~3.4 mln), CAR (~1.8 mln), LVNTA (~2.5 mln)
  • Increased positions in: PRTK (to ~2 mln shares from ~1.5 mln shares)
  • Decreased positions in: NG (to ~9.5 mln shares from ~15 mln shares), AR (to ~14.5 mln from ~21.5 mln)
  • Closed positions in: BXE (from ~8.7 mln shares), SRAQU (from ~3.8 mln), LQ (from ~1.1 mln), GNW (from ~1.7 mln), BITI (from ~1.4 mln)

>>> Appaloosa (David Tepper) discloses updated portfolio positions

Appaloosa (David Tepper) discloses updated portfolio positions in 13F filing:

 Highlights from 2016 Q2 filing as compared to 2016 Q1 filing:
  • New positions in: QHC (~0.8 mln shares), USFD (~0.7 mln), WDC (~1.5 mln)
  • Increased positions in: AGN (to ~1.3 mln shares from ~0.3 mln shares), MHK (to ~0.8 mln from ~0.6 mln)
  • Decreased positions in: AMLP (to ~4.8 mln shares from ~13.9 mln shares), ETP (to ~11.4 mln from ~16.2 mln), GM (to ~1.4 mln from ~2.4 mln), GT (to ~0.7 mln from ~1 mln), HCA (to ~1.2 mln from ~3.2 mln), IR (to ~0.5 mln from ~0.7 mln), KMI (to ~1.5 mln from ~4.5 mln), PPG (to ~0.2 mln from ~0.6 mln), WPZ (to ~9.3 mln from ~13.2 mln), IR (to ~0.5 mln from ~0.7 mln)
  • Closed positions in: THC (from ~0.3 mln shares), BAC (from ~7 mln), COG (from ~1.3 mln), URI (from ~0.6 mln), DAL (from ~8.6 mln), FB (from ~1.6 mln), PFE (from ~2.5 mln), RRC (from ~1.4 mln) SWN (from ~4.4 mln) FB (from ~1.6 mln)

    • >>> Third Point (Dan Loeb) discloses updated portfolio positions in

    Third Point (Dan Loeb) discloses updated portfolio positions in 13F filing: New positions in ATVI, FB, MRO, SUPV, WLL, PGI, LBTY.A, MON, SPGI; closes position in ROP, FOXA, TRGP, WMB, AMGN

    Highlights from 2016 Q2 filing as compared to 2016 Q1 filing:
  • New positions in: ATVI (~3 mln shares), FB (~3.8 mln), MRO (~4 mln), SUPV (~4.5 mln), WLL (~8.2 mln), SPGI (~1.6 mln), LBTY.A (~2 mln) MON (~2 mln) SPGI (~1.6 mln)
  • Decreased positions in: TAP (to ~1 mln shares from ~2.2 mln shares), GOOGL (to ~0.4 mln from ~0.7 mln)
  • Closed positions in: ROP (from ~1.4 mln shares), FOXA (from ~1.5 mln), TRGP (from ~1.8 mln), WMB (from ~2 mln), AMGN (from ~3 mln)

    • >>> US Close Dow-0.20% S&P-0.08% Nasdaq+0.09% Russell+0.06%

    Closing Market Summary: Nasdaq Notches High on Range Bound Friday

    The stock market ended a flat week on a similar note as disappointing readings of July retail sales (0.0%; consensus +0.4%) and July PPI (-0.4%; consensus 0.0%) stalled the major averages in record territory. The S&P 500 (-0.1%; week-to-date: +0.1%) ended the week flat while the tech-heavy Nasdaq Composite (+0.1%; week-to-date: +0.2%) finished slightly ahead of the broader market. 

    The benchmark index meandered in a narrow seven-point range, pressured by weaker-than-expected economic data. The Retail Sales Report for July offered a disappointing preview of consumer spending for the third-quarter. Recall that consumer spending was a strong point for second-quarter GDP growth. The negative reading also contributed to a downward revision to the Atlanta Fed's GDPNow forecast for the third quarter (to 3.5%; from 3.7%). Separately, the Producer Price Index for July (-0.4%; consensus 0.0%) also came in below consensus, indicating a continued lack of upward pricing pressure.

    Retailers managed to shrug off the weaker-than expected retail sales report, focusing on better-than-expected earnings results from J. C. Penney (JCP 10.55, +0.61) and Nordstrom (JWN 51.38, +3.82). The two department store names beat bottom-line estimates, extending the rally in the broader SPDR S&P Retail ETF (XRT 45.51, +0.25). Today's trade also featured a rally in crude oil futures, softening in the dollar, and the underperformance of the heavily-weighted financial (-0.2%), health care (-0.2%), and industrial (-0.3%) sectors.

    The S&P 500 (-0.1%) settled in the middle of today's trading range as seven sectors ended in the red. The commodity-sensitive energy sector (+0.7%) led amid a 2.2% ($44.46/bbl; +$0.96) gain in crude oil futures. Conversely, industrials (-0.3%), telecom services (-0.4%), and materials (-1.2%) rounded out the leaderboard.

    The Dow Jones Transportation Average (-0.5%) finished behind the benchmark index as airlines weighed. Southwest Air (LUV 36.52, - 0.72) remained pressured after cutting its third-quarter revenue per available seat mile guidance on Wednesday. The stock declined 3.5% this week, which compares to a loss of 0.8% in the broader Transportation Index.

    The heavyweight financial sector (-0.2%) displayed relative weakness as expectations for a rate hike by the end of the year diminished. The fed funds futures market currently estimates the likelihood of an interest rate hike at the December meeting at 38.7%. This compares to yesterday's implied probability of 51.9%. The shift in rate hike expectations also contributed to a bid in Treasuries, which also pressured the economically-sensitive sector. The financial space finished the week lower by 0.6%, returning to negative territory for the year (-0.1%).

    In the health care sector (-0.3%), Dow component Merck (MRK 63.35, -0.28) extended its week-to-date loss to 0.8%, pulling back from last Friday's 10.4% rally. On the flipside, Anthem (ANTM 130.19, +1.99) and Cigna (CI 133.31, +6.69) outperformed. The names rose after reports indicated that settlement offers might be entertained in their antitrust case. The U.S. Department of Justice moved to block their proposed merger on July 21.

    The PHLX Semiconductor Index (+0.5%) outperformed as NVIDIA (NVDA 63.04, +3.34) led the price-weighted index. The company reported above-consensus quarterly results last evening. In the broader technology sector (-0.1%), Microsoft (MSFT 57.94, -0.36) underperformed after CEO Satya Nadella disclosed the sale of 143,000 shares. Separately, Coatue Management reported that it reduced its position in the Dow component, cutting its equity exposure to ~4.9 million shares from ~10.8 million.

    The U.S. Dollar Index (95.74, -0.12) recovered some early losses as the greenback trimmed its decline against the euro and the yen. The euro ended higher by 0.2% against the buck (1.1161) while the dollar/yen pair finished lower by 0.7% (101.29).

    Treasuries ended higher, benefiting from declining rate hike expectations. The yield on the 10-yr note settled lower by five basis points (1.51%). Separately, the yield on the 2-yr note slipped four basis points to 0.71%.

    Today's participation was below the recent average as fewer than 693 million shares changed hands at the NYSE floor.

    Today's economic data included July PPI, July Retail Sales, the preliminary reading of the Michigan Sentiment Index for August, and Business Inventories for June: 

    • The Producer Price Index for July featured a 0.4% decline in the final demand index (consensus 0.0%) following a 0.5% increase in June.
      • The downturn in July was paced by prices for final demand services, which fell 0.3%.
      • The index for final demand goods, meanwhile, decreased 0.4%.
      • On a year-over basis, the final demand index is down 0.2% versus a 0.3% increase seen in June.
      • Excluding food and energy, the final demand index declined 0.3% on the heels of a 0.4% increase in June.
      • That left the index up 0.7% year-over-year, which is a slowdown from the 1.3% growth rate seen in June.
    • The Retail Sales report for July showed no change in total retail sales (consensus +0.4%) after an upwardly revised 0.8% increase (from 0.6%) in June.
      • Excluding autos, retail sales declined 0.3% (consensus +0.2%) following an upwardly revised 0.9% increase (from 0.7%) in June.
      • Gasoline station sales (-2.7%) were the main drag and helped break a string of three consecutive monthly increases in retail sales.
      • Other weak spots included sporting goods, hobby, book and music stores (-2.2%), food and beverage stores (-0.6%), building material and garden equipment and supplies dealers (-0.5%), clothing and accessories (-0.5%), food services and drinking places (-0.2%), general merchandise stores (-0.1%), and electronics and appliance stores (-0.1%).
      • Motor vehicle and parts dealers (+1.1%) provided an influential offset of sorts, but by and large there was a slowdown in sales across most categories following some relatively strong sales performances in June.
    • Core retail sales, which exclude auto, gasoline station, building material, and food services sales, and which factor into the goods component for personal consumption expenditures in the GDP report, were flat.
    • Total business inventories increased 0.2% in June (consensus +0.1%) following an unrevised 0.2% increase in May.
      • The key takeaway from the report is that business inventories continue to remain at an elevated level relative to sales.
      • This points to ongoing difficulties in achieving pricing power and perhaps some more conservative approaches to increasing inventory investment.
      • Manufacturers' inventories (-0.1%) and wholesaler inventories (+0.3%) were already known.
      • The total business inventory-to-sales ratio for June dipped to 1.39 from 1.40 in May, yet that was still above the 1.37 ratio seen in the same period a year ago.
    • The preliminary reading for the University of Michigan Index of Consumer Sentiment for August checked in at 90.4 (consensus 90.2) versus the final reading of 90.0 for July.
      • From our vantage point, the key takeaway from the report is that there wasn't any significant change in consumer sentiment.
      • This comes despite the stock market rally and the stronger-than-expected employment data seen for July and August.
      • The improvement in August was fed by the Index of Consumer Expectations, which jumped to 80.3 from 77.8 in July.
      • The Current Economic Conditions Index, meanwhile, dropped to 106.1 from 109.0.

    Monday's economic data will include Empire Manufacturing for August (consensus 4.0) and the August NAHB Housing Market Index (consensus 59), which will be released at 8:30 ET and 10:00 ET, respectively. The day's data will be capped off with the 16:00 ET release of Net Long-Term TIC Flows for June.

    (ZH) As US Crude Exports Soars, Here Are The Biggest Foreign Buyers Of US Oil

    Strange things are happening in a world continues to find itself with "low-priced" oil and an unprecedented gasoline glut, the latest of which is an unexpected boon for US fuel makers as Latin American refineries quietly go bust.

    As Bloomberg writes, from Brazil’s Petroleo Brasileiro SA to Mexico’s Petroleos Mexicanos, state oil companies have failed to complete nine projects worth at least $36.4 billion that would have supplied 1.2 million barrels of gasoline and diesel daily. U.S. refiners have stepped up to help fill the gap, with exports almost doubling in the past six years, according to the U.S. Energy Information Administration. Falling oil prices, high levels of debt and failure to find partners to help finance the plants are among the reasons cited by Pemex, Costa Rica’s Refinadora Costarricense de Petroleo SA and Colombia’s Ecopetrol SA for postponing their plans. Brazil’s Petrobras has been slowed by the price drop as well as a corruption scandal.

    “Refinery investment plans in the region have really fizzled out over the past year or so,” Mara Roberts, a BMI Research analyst based in New York, said in an e-mail. “Latin America is keen to take in growing U.S. supplies.” As a result, US exports to the region have been rising steadily and reached a record 1.88 million barrels a day this year. Latin America now accounts for 42 percent of America’s fuel exports, up from 38 percent a decade ago. U.S. fuel output increased 4.1 percent over two years to a record 19.9 million barrels a day in 2015, EIA data show.

    US gasoline exporters aren't the only ones benefiting from current conditions. As the EIA writes in its most recent blog post, since the removal of restrictions on exporting U.S. crude oil in December 2015, the number of countries receiving exported U.S. crude has risen sharply. These exports have occurred despite a sustained narrow price premium of international crude oil prices over U.S. domestic crude oil prices, the many costs associated with arranging cargoes for export, and falling U.S. crude production.

    In the first five months of 2016, U.S. crude oil exports averaged 501,000 barrels per day (b/d), 43,000 b/d (9%) more than the full-year 2015 average. This rate of growth is significantly slower than before the restrictions were lifted, when year-over-year growth from 2012 to 2013 was 100%, and then 162% from 2013 to 2014 (Figure 1). However, after the lifting of restrictions, the number and variety of destinations for U.S. crude oil exports has changed. So far in 2016, crude oil was exported to 16 different nations, six more than 2015 and double the number of destinations in 2014.
    Before the removal of export restrictions, most U.S. crude oil shipments were to Canada. In recent years, crude exports to destinations other than Canada were re-exported volumes of foreign crude or an occasional cargo of Alaskan crude, which was exempt from export restrictions.
    In March 2016, total crude oil exports to countries other than Canada exceeded those to Canada for the first time since April 2000, 259,000 b/d versus 249,000 b/d. In May 2016, when total U.S. crude oil exports reached 662,000 b/d; exports to countries other than Canada exceeded exports to Canada by 46,000 b/d (Figure 2).

    Aside from Canada, the largest and most consistent U.S. crude export destination for the first five months of 2016 has been Curacao, located in the Caribbean Sea north of Venezuela; exports averaged 54,000 b/d through May (Figure 3). Petróleos de Venezuela (PDVSA), the state-owned oil company of Venezuela, operates the 330,000 b/d Isla refinery on Curacao, as well as crude and petroleum product storage facilities on the island. Trade press reports indicate that U.S. crude exports to Curacao are likely being used as diluent, blending a light U.S. crude with a heavy Venezuelan crude, for either processing at the Isla refinery or for re-export to PDVSA customers.
    Exports to the Netherlands, the second-largest non-Canadian destination for U.S. crude oil, averaged 39,000 b/d through the first five months of this year. Two of the three cities that collectively are the large refining and petroleum product trading hub of Amsterdam, Rotterdam, and Antwerp, known as the ARA, are located in the Netherlands. Other Western European nations, including Italy, France, and the United Kingdom, also rank high on the list of U.S. crude oil export destinations.
    The Marshall Islands, a group of islands in the Pacific Ocean, is the fifth-largest non-Canadian destination for U.S. crude oil exports in 2016, averaging 14,000 b/d through May. With no refineries, the Marshall Islands are unlikely the final destination, but rather may be the location of ship-to-ship transfers for delivery to destinations in Asia, or a point at which a cargo of crude oil would await a buyer in Asia. U.S. Customs and Border Protection documentation requires the final destination of an export, if known. Therefore, cargoes that will undergo ship-to-ship transfer or that do not have a buyer prior to loading will cite the jurisdiction of the transfer, not the cargo's actual final destination.
    The costs involved in exporting a cargo of crude oil can vary significantly. Transporting crude to a port, storage, loading, shipping, and other costs typically require large price spreads to make a transaction economic. Recent exports are occurring during a period when the price of Brent crude oil (the benchmark for global seaborne crude) has held a narrow premium to West Texas Intermediate (WTI, the U.S. benchmark), limiting the positive economic options for exporting U.S. crude. Through early August 2016, WTI averaged about $0.31 per barrel (b) less than Brent, despite a recent widening to $1.08/b for the week ending July 1 (Figure 4).
    Available shipping options can provide opportunities for crude exports despite a narrow price spread. For example, the recent cost of booking a tanker for a spot shipment of crude oil has been the lowest since 2009. Also, if either a buyer or a seller of exported crude oil has a tanker on time charter (meaning the vessel’s time has already been paid for a set period, fixing its cost), the vessel may operate independently of tanker rates. Another shipping option is to book a back-haul voyage, the trip a tanker would normally make empty while returning to a port to load its next cargo. Back-haul voyages can be significantly discounted from regular tanker rates. Refineries in the ARA and in the rest of Western Europe actively trade with markets and refineries in the United States, using both clean (refined cargoes) and dirty (less refined or unrefined cargoes) tankers. Trade flows between Europe and the U.S. Gulf Coast, which primarily use dirty tankers for transporting crude and less refined products such as residual fuel oil, provide opportunities for back-haul cargoes of U.S. crude oil.
    In addition, sellers of U.S. crude can use several methods to entice buyers despite unfavorable price spreads. A particular cargo or grade of crude oil can be discounted from a benchmark based on quality variations, such as API gravity, sulfur content, or other specifications. With the hope of continued purchases in the future, marketers of U.S. crude for export may offer buyers price discounts on sample or test cargoes, so that refiners may become more familiar with the crude and its compatibility with their refinery and desired product yield. This may explain some of the sporadic, typically small-volume crude oil export patterns to some countries in Asia, Europe, and elsewhere.