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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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How U.S. Shale Upended Global Crude Flows

The U.S. removed the ban on American crude oil exports to countries other than Canada in 2015, unleashing a new force on the global oil market to be reckoned with.  Soaring shale production over the past half-decade has not only helped America to reduce its reliance on foreign oil imports, but it has also created a new global player on the market, taking market share from the top exporters, Saudi Arabia and Russia.  

The shale boom—especially in the years 2017-2019 when U.S. exports were no longer restricted—frustrated the efforts of the OPEC+ coalition led by the Saudis and Russia to tighten the market and prop up oil prices. Every time the OPEC+ group succeeded in taking oil prices above $55-60 per barrel, U.S. producers ramped up drilling activity, taking advantage of the higher prices—and ultimately capping gains because of the rising supply out of America. 

OPEC and its key ally in the OPEC+ alliance, Russia, began to consider (albeit not publicly) the U.S. shale response to higher prices when setting production policies. The group has signaled with its policies over the past few years that despite the temptation to rake in more oil revenues with oil above $60, it is unwilling to sacrifice too much market share to U.S. shale by tightening supply too much and lifting oil prices to above the break-evens of the major U.S. shale basins. 

Some of the U.S. shale companies did “drill themselves into oblivion,” as Harold Hamm warned in 2017, after taking on too much debt to pump more and more crude. With prices crashing in 2020, bankruptcies soared, but the United States has already established itself as a key producer on the global oil market. 

Related: Oil Bulls Are Back

It actually had become the world’s biggest crude oil producer in 2018, surpassing both Saudi Arabia and Russia, and has kept that status since then, even with the production decline due to the pandemic. On the other hand, Saudi Arabia and Russia—bound by their OPEC+ cut pact—have been withholding production from the market for more than four years now. 

The U.S. shale boom and the lifting of the export ban resulted in growing U.S. crude oil exports, which averaged nearly 3 million barrels per day (bpd) in 2019, EIA data shows. Since late 2019, average monthly U.S. crude oil exports have exceeded 3 million bpd in every month except May and June 2020. 

Rising exports helped to reduce the U.S. dependence on foreign crude oil from the peak in 2005, and it also mitigated oil price surges when events in the Middle East spooked the global market. 

In a decade and a half, U.S. crude oil imports sank to 6.8 million bpd by 2019, about one-third less than 2005 volumes of more than 10.1 million bpd. 

The U.S. shale boom was one of the reasons why oil prices didn’t soar to triple digits when more than half of the oil production of the world’s top oil exporter Saudi Arabia was knocked offline by attacks in September 2019. Rising U.S. oil exports have also kept oil from soaring for prolonged periods when the Trump Administration slapped sanctions on the oil exports of Iran in 2018 and Venezuela in 2019. 

“The flow of U.S. oil since the ban’s end has kept global oil supply in balance even at times when politics have caused the loss of supply from Iran, Venezuela and Libya,” Sandy Fielden, director of oil research at Morningstar, told Bloomberg

Going forward, U.S. crude oil exports have the chance to take additional market share from heavyweights Saudi Arabia and Russia in the world’s top oil importing market, China. But the Biden Administration could cap new drilling activity on federal lands and waters, limiting the sources of U.S. crude oil going to foreign markets.  

In November 2020, U.S. exports to China jumped thirteen-fold annually, to the third-largest on record, as Beijing stepped up crude purchases under the first phase of the U.S.-China trade deal. 

Yet, Biden’s pledge to ban federal leasing on natural gas and oil development on public lands and waters could reverse the declining trend of U.S. crude oil imports, the American Petroleum Institute (API) says, warning that nearly 1 million jobs could be lost by 2022, while U.S. crude oil imports from foreign sources could increase by 2 million bpd by 2030. 

By Tsvetana Paraskova for Oilprice.com 

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Leave a comment
  • Lee James on January 11 2021 said:
    This article reads like a pipe dream. It taps into U.S. politics and international geopolitics. It barely touches on the economics of shale oil and gas. Keep exporting petroleum . . . but at what price to produce it?

    I'm rather surprised at this article given the previous extensive discussion on OilPrice about the economics and environmental impact of shale oil extraction. It reads like an obvious attempt to extract more investors at a time when banks and investment houses are shifting to other sources of energy.
  • Mamdouh Salameh on January 11 2021 said:
    US shale oil may have frustrated OPEC+ efforts before the COVID-19 pandemic to tighten the market and prop oil prices and gained market share at its expense but OPEC+ had the last laugh when it won a decisive victory against US shale oil.

    US shale oil will neither have any prospect of growth nor a comeback soon (or may be ever) to previous levels. It hasn’t only lost a sizeable production as a result of the pandemic but also its importance to the global oil market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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