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The Bullish EIA Message Markets Have Overlooked

U.S. shale hasn’t just introduced…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Light Oil Set To Flood Global Market

Shale oil production growth to record highs in the United States drove a 2.5-million-bpd increase in global oil production last year despite OPEC+ cuts, Italy’s Eni said in the latest edition of its World Oil Review report, part of the company’s World Oil, Gas and Renewables Review.

According to the report, the U.S. accounted for 88 percent of this growth in global oil production, while OPEC recorded a production decline overall, on the back of U.S. sanctions against Iran and Venezuela, which took off a combined 800,000 bpd from the cartel’s production in 2018.

While the U.S. became the world’s largest oil producer last year thanks to shale and found a place among the top ten oil exporters in the world, it changed the blend mix on global markets, Eni said in its report. Thanks to shale, the portion of light sweet crudes on international markets increased to more than 20 percent. At the same time, because of sanctions against Venezuela and declining production in Mexico, the portion of medium sour crudes fell below 40 percent of the total for the first time ever.

This change in crude oil grade availability is changing the dynamics in prices, too. Earlier this year, the prices of some heavy crude grades touched a premium to lighter grades on concerns about a heavy crude supply crunch resulting from sanctions and OPEC cuts: most OPEC members reduced their heavier crude production in favor of light and sweet grades used to produce gasoline.

This supply crunch helped U.S. exports: in early June, Reuters reported that as many as six Very Large Crude Carriers were waiting to load medium sour crude from the Gulf of Mexico for export markets. At the same time, Gulf Coast refiners struggled with an excess of light crude produced from the shale plays nearby: the Permian and the Eagle Ford. Related: The First Country To Abandon IMO 2020

Interestingly enough, despite the looming new emissions rules of the International Maritime Organization that will go into effect next January, Eni reported that the global production of medium sour crude, which has a higher sulfur content than light sweet crudes, increased last year to come to account for 11.8 percent of the total from 9.9 percent a year earlier. At the same time, total sweet crude production inched down to 35.6 percent of the total from 36.3 percent in 2017.

Amid these changing patterns of production, demand for crude oil last year continued to grow despite the flurry of climate emergency declarations prompted by protests and demands by environmental organizations for governments to do more about climate change. According to Eni, global oil demand rose by 1.4 million barrels daily, with Asia—and specifically China and India—unsurprisingly leading the way. The two largest economies on the continent accounted for half of that demand growth. At the same time, in increasingly renewable Europe, oil demand remained virtually unchanged from a year earlier.

Refining capacity also increased last year, with Asia once again leading the way: as much as 75 percent of the new global refining capacity of 1 million bpd was built there, the Italian supermajor said. This year, more new refining capacity is expected, especially in China: new additions of almost 900,000 bpd are expected this year from the current 15 million bpd.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on August 01 2019 said:
    Either you follow a political agenda in what you write or you don’t read what international oil experts like me and others are saying. That is why you keep repeating the same hype and the same false claims in your articles.

    A case in point is that between 2017 and 2018, US oil production grew from 9.35 million barrels a day (mbd) to 10.96 mbd thus adding only 1.61 to global oil production according to the authoritative 2019 OPEC Annual Statistical Bulletin. This contributed amounted to 64% of growth in global oil production and not 88% as your article mentioned.

    The second case in point is the claim that the US became the world’s largest oil producer last year. This is a plain lie. In 2018 the US produced 10.961 mbd compared with 11.438 mbd for Russia and 10.32 mbd for Saudi Arabia. This means that the world’s largest oil producer is Russia followed by the US and then Saudi Arabia.

    And with the confirmed slowdown in the Permian which accounts for 65%-70% of US shale oil production, US oil production is projected to range between 10 mbd and 11 mbd this year and 10 mbd or less in 2020.

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

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