The shale boom in the United States, which led to a 75 percent increase in oil production between 2010 and 2015, has seriously diminished the concern over energy security in Washington DC.
The topic of energy security, long a high priority for American policymakers, usually focused on the high levels of crude oil imports. The U.S. once imported well over 10 million barrels of oil per day (mb/d), way back in 2006. But since then, imports have steadily declined as cars have become more efficient, and crucially, as U.S. shale drilling exploded.
The U.S. posted consecutive years of declining imports, falling to an average of 9 mb/d in 2010, then to 8.8 mb/d (2011), 8.6 mb/d (2012), 7.8 mb/d (2013) 7.4 mb/d (2014), and finally dropping to 7.3 mb/d in 2015, the lowest level of imports in at least two decades.
But, imports have reversed more recently, ticking up from 7.3 mb/d last year to an average of 7.8 mb/d so far in 2016. Why did that happen?
(Click to enlarge) Related: Saxo Bank: Upside For Crude Diminishes As Traders Shift Focus
There are several explanations for why imports are trending up. First, U.S. oil production is falling. That is pretty straightforward – less domestic production means the U.S. needs more imports to meet demand. If we are to assume the latest EIA weekly production figures are accurate, U.S. production is down to 8.825 mb/d and falling. That is down more than 860,000 barrels per day from the peak in April 2015.
Another reason that imports are rising is that demand is going up again. U.S. motorists were burning through gasoline at a rate of 9.4 mb/d in April, using a four-week average. More accurate monthly figures, which are published with a several month lag, show that consumption hit 9.2 mb/d in February, the latest month for which data is available. We can bicker about the exact numbers, but either way, the trend is clear: cheap gasoline is fueling a resurgence in demand after several years of no growth.
(Click to enlarge)
So, if supply is falling and demand is rising, the gap must be bridged with a sharp increase in imports. Related: Low Oil Prices? Texas Is Doing Just Fine
There are a few more factors pushing up imports that are a little less straightforward. For example, Iran has brought some production back to the market since sanctions were lifted at the beginning of the year. The U.S. is not legally allowed to import Iranian crude, but Iranian oil is undercutting some competitors on price, according to the WSJ. Oil from Angola, for example, has been rerouted to the United States after losing a foothold in Europe because of cheap Iranian oil.
Moreover, another reason that the U.S. is importing more crude is that there is still some availability of storage space in the United States. OECD countries have more than 3 billion barrels of oil sitting in storage, and some key storage hubs are filling up. The WSJ reports that storage sites such as Rotterdam, Cape Town, and even some hubs in China are running low on available space. The U.S., on the other hand, still has about 100 million barrels of available storage, according to Genscape. Even though the U.S. has more than 543 million barrels of oil inventories, a record high, there is still some unfilled space. Related: Why Iran’s Shale Oil Discovery Won’t Add To The Glut
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More oil shipments from around the world are heading to the U.S. for storage, as the supply glut continues. The WSJ says that about 114 million barrels of oil was imported into the U.S. and diverted into storage between May 2015 and February 2016, a 30 percent increase from the same period a year earlier. Much of that went to the main storage hub of Cushing in Oklahoma, as well as Illinois.
The problem with rising imports is that the growing mountain of oil sitting in storage will push down prices, or prevent them from rising. That will likely cut into U.S. domestic production even further.
By Nick Cunningham of Oilprice.com
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Seems a lot of the Texas and OK production is condensate and the refiners aren't even crazy about straight light crude, so forget about the ultra light.
With medium sour and heavy coming in, where's the condensate to go?
(2) Condensates are a good base for chemicals, not a repacement for crude.
But Pioneer PXD is interesting. Focused on the Permian and likely to produce notable condensate, they pushed for the ability to export condensate in 2014 I believe. Got it but figures seem to indicate total US exports are actually down since. Also saw info and a report from the Dallas Fed in late 2014 about the large amount of condensate coming from the Eagle Ford and what to do about it. Wish I saw that report sooner.
Might not just be a US experience. Saw news blip that most of the Iranian offshore storage might have been condensate and product. Also Iran building a refinery just to process condensate. I think called Gulf Star??
Though there is more oil in storage, it's not clear to me whether if you take an apples to apples quality of inventory look, there is such a huge surplus.