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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Why U.S. Oil Exports Are Surging

Oil

U.S. crude oil exports are surging and going to a growing number of buyers around the world, including to the fastest-growing demand centers in Asia, the traditional stronghold of the Middle Eastern oil exporters.

Booming U.S. production, expanding pipeline and export capacity, and the more than $3-a-barrel discount of WTI spot prices to Brent supported the surge in U.S. oil exports last year.

This year, it looks like these three key drivers of American exports—higher production, higher capacity, and higher WTI-Brent discount—are here to stay, leading to a continued increase in overseas shipments, much to the frustration of OPEC exporters whose market share of the prized Asian market is starting to erode.

In 2017, the second full year since the restrictions on U.S. crude oil exports were removed in late 2015, American oil exports almost doubled compared to 2016, averaging 1.1 million bpd, the EIA said this week.

The U.S. shipped its oil to 37 countries last year, up from 27 in 2016. Canada was still the biggest export market for U.S. oil, but its total share dropped to 29 percent last year from 61 percent in 2016. The most notable increase in U.S. exports was recorded in none other than China, where Russia and Saudi Arabia have been competing for years for the top spot, with Russia having gained the upper hand in the past two years.

U.S. crude oil exports to China accounted for 202,000 bpd—or 20 percent—of the 527,000-bpd total increase in American exports in 2017, EIA data showed. China surpassed the United Kingdom and the Netherlands to become the second-largest destination for U.S. crude oil exports last year, just behind Canada.

Another large Asian crude oil importer, India, which had not received any U.S. oil in 2016, bought 22,000 bpd in 2017 to tie with Spain as the tenth-largest destination of American crude sales.

It’s not only the high U.S. production that drove the increased exports: the WTI-Brent spread was a major incentive last year. Spot Brent prices averaged $3.36 a barrel more than WTI prices in 2017, compared with just $0.40 a barrel more in 2016, “providing a price incentive to export U.S. crude oil into the international market,” the EIA said. Related: Canada Is Facing A Heavy Crude Crisis

According to the EIA, this year similar production, infrastructure, and WTI-Brent price conditions will be necessary to keep U.S. exports trending upwards. And it looks like all these conditions are likely to be fulfilled in 2018.

Total U.S. crude oil production will average 10.7 million bpd in 2018, up from the average 9.3 million bpd in 2017, and WTI prices will average $4 a barrel lower than Brent prices in both 2018 and 2019, the EIA said in its latest Short-Term Energy Outlook—a favorable spread for U.S. exports.

So far this year, total U.S. oil production has already surpassed that of OPEC’s leading producer Saudi Arabia, and the United States is on track to topple Russia to become the world’s largest crude oil producer as early as later this year, the International Energy Agency (IEA) says.

In export capacity, the Louisiana Offshore Oil Port (LOOP) recently shipped out U.S. oil on the largest sized supertanker there is after the port expanded to accommodate the bigger vessels. These supertankers, capable of carrying 2 million barrels of oil, could reduce shipping costs, thus making U.S. exports even more attractive, especially on long-haul routes to the oil-hungry markets in Asia.

Rising U.S. exports to Asia are eating into OPEC producers’ market share and threatening to unravel the OPEC/non-OPEC production cut deal, Warren Patterson, a commodities strategist at Dutch bank ING Groep NV, told Bloomberg recently.

“They continue to give market share away to the U.S.,” Patterson said, referring to OPEC’s producers.

U.S. exports will continue to rise in the medium term, and by 2022, the United States will be the fourth biggest oil exporter in the world behind Saudi Arabia, Russia, and Iraq, energy consultancy Wood Mackenzie said at the end of January. The U.S. will export 4 million bpd of light sweet crude of API gravity of between 38 and 45 by 2022, WoodMac has estimated.

The U.S. will continue to import heavy oil, but its light crude will find a market, thanks to global demand growth estimated at 5 million bpd over the next few years.

Related: 44 Things You Didn’t Know About Oil

“OPEC producers and others will compete for market share; but as the marginal supplier, we expect tight oil to capture the lion’s share of incremental growth,” WoodMac reckons.

Then, rising shale production is expected to have a lasting effect on crude price differentials. The Brent premium over WTI has averaged under $3 per barrel over the last three years, but WoodMac expects it to be around $6 per barrel in the coming years.

So far, higher U.S. production and export capacity and the Brent premium over WTI are shaping up favorably for American exports that are already upending global oil markets. How far the disruption will go and how fast the U.S. could become a top five global oil exporter will depend on oil prices and spreads, the pace of U.S. production growth, and a possible response from OPEC if it soon decides it is time it started to defend its market share.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on March 18 2018 said:
    While it is true that US oil exports are on the rise, they only averaged 1.12 million barrels a day (mbd) in 2017 of which 200,000 barrels a day (b/d) went to China’s refineries, another 22,000 b/d went to India and the rest was sold around the world for blending with heavier oils. Therefore, US oil exports can neither compete in volume or use with OPEC’s exports 75% of which go to the Asia-Pacific region nor with Russia' who is the main supplier of oil to China.

    Moreover, claims by the International Energy Agency (IEA) that US oil production has already this year surpassed that of Saudi Arabia and is on track to also overtake Russia’s later this year to become the world’s largest crude oil producer are plain hyping and falsification of figures. And here is the explanation.

    The EIA production figures mask the fact that they include a minimum of 2 mbd of natural gas liquids and plant gases such as ethane, propane, butane and pentanes which don’t qualify as crude oil and condensates in its crude oil count. The real question is whether natural gas plant liquids can be sold as oil on the world market. The answer is an emphatic “No”. In fact, major oil exchanges accept neither natural gas plant liquids nor lease condensates as satisfactory delivery for crude oil. And if major exchanges don’t accept natural gas liquids as crude oil, then they are not crude oil. And there you have it.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • citymoments on March 18 2018 said:
    US oil is super light sweet crude, most refineries around the world are designed for heavy crude oil. Every refinery requires average $9bn to build, she obviously thinks all refineries can refine any kind of oil, that is so ignorant.
  • Brian Bresee on March 18 2018 said:
    United States oil companies are popping the corks off of champagne bottles, compliments of OPEC and Russian self imposed limits. US antitrust law forbids the type of price fixing taking place, and therefore will diminish the efforts to raise oil prices from the rest of the world. The only question now is how much market share are OPEC and Russia willing to lose in their effort to artificially raise oil prices? The price of oil will no doubt go down when they decide they have lost enough, as market forces always win in the end.
  • Kamamura on March 19 2018 said:
    Meanwhile, in the world of cold facts, USA is still a net energy importer. The image of the USA "flooding the world with crude" is pure fake news.
  • Tony on March 19 2018 said:
    You guys seeing the new crop of luxury EVs coming out from all the players? Put some solar panels on the roof, a level 2 charger in your garage, and drive that car without ever spending a dime on energy to keep it running. Oh man...good times.
  • Lee James on March 19 2018 said:
    To echo other comments somewhat, not all barrels of oil are created equal. And, there's a bit of a juggle across international borders, this way and that.

    I don't see lot to celebrate when it comes to getting remaining barrels out of the ground and getting them to where they need to go. We need fewer downsides than what the oil industry has to offer. Basically, we need to use today's barrels very wisely and not just make them go up in smoke.

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