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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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U.S. ‘’Oil Weapon’’ Could Change Geopolitics Forever

In a dynamic that shows just how far U.S. oil production has come in recent years, the U.S. Energy Information Administration (EIA) said on Monday that in the last two months of 2018, the U.S. Gulf Coast exported more crude oil than it imported.

Monthly net trade of crude oil in the Gulf Coast region (the difference between gross exports and gross imports) fell from a high in early 2007 of 6.6 million b/d of net imports to 0.4 million b/d of net exports in December 2018. As gross exports of crude oil from the Gulf Coast hit a record 2.3 million b/d, gross imports of crude oil to the Gulf Coast in December—at slightly less than 2.0 million b/d—were the lowest level since March 1986.

U.S. oil production hit a staggering 12.1 million b/d in February, while that amount has been projected to stay around that production mark in the mid-term then increase in the coming years. The U.S. is the new global oil production leader, followed by Russia and Saudi Arabia, while Saudi Arabia is still the world’s largest oil exporter - a factor that still gives Riyadh considerable leverage, particularly as it works with Russia, and other partners as part of the so-called OPEC+ group of producers. However, Saudi Arabia's decades-long role of market swing producers has now been replaced by this coalition of producers, reducing Riyadh’s power both geopolitically and in global oil markets. In short, what Saudi Arabia could once do on its own, it has to do with several partners.

Meanwhile, U.S. crude oil production, particularly in the Gulf Coast region, is still increasing. In November 2018, U.S. Gulf Coast crude oil production set a new record of 7.7 million b/d, the IEA report added. However, since most of the oil produced in the U.S. is light sweet crude, the U.S. still has to rely on heavier crude blends from Saudi Arabia, Venezuela and others since most American refineries are configured to process heavy crude. On the other hand, a surplus of light sweet crude allows the U.S. to export more oil thus giving the country growing energy geopolitical power once enjoyed almost exclusively by Saudi Arabia and Russia. The increasing amount of U.S. crude being exporter, along with the increasing amount of U.S. LNG being imported (with exports of both fuels projected to increase) is changing energy geopolitics. Related: U.S. On The Hunt For Iranian “Ghost Tankers”

U.S. oil weapon possibilities

Evidence of growing American energy clout was evident last week when Secretary of State Mike Pompeo urged the oil industry  to work with the Trump administration to promote U.S. foreign policy interests, especially in Asia and in Europe, and to punish what he called “bad actors” on the world stage. Pompeo made his remarks at IHS Markit’s CERAWeek conference in Houston, where U.S. oil and gas executives, energy players and OPEC officials usually gather annually to discuss global energy development. Pompeo's added that America’s new-found shale oil and natural gas abundance would “strengthen our hand in foreign policy.” He added that the U.S. oil-and-gas export boom had given the U.S. the ability to meet energy demand once satisfied by its geopolitical rivals.

This is the first time, in at least recent history, that American officials have considered using oil production and exports for geopolitical advantage. One of the last times the country had such oil production clout dates back to the years just before World War II when the U.S. held back oil exports to Japan. Consequently, this was one of the mitigating factors that provoked Japan to attack Pearl Harbor in 1941. Moreover, Pompeo's comments can be viewed as a reversal from the so-called oil weapon that Arab producers have used on the U.S. and its western allies for decades, including both the unsuccessful 1967 Arab oil embargo and the 1973 Arab oil embargo that brought the U.S. and its allies to their knees, driving up the price of oil four-fold and contributing to severe economic headwinds for the West and a geopolitical and economic shift that still persists to the current.

By Tim Daiss for Oilprice.com

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Leave a comment
  • Steven Conn on March 20 2019 said:
    I'm trying to understand how this will be done, and how much demand is there for US oil and gas globally? After all, Trump has had to push and shove EU, especially Germany, to accept some US LNG, and to entice China to buy US oil and LNG. If Washington is using political means to get others to buy its oil and gas, how much do they really want it? How competitive are its prices if normal market mechanisms have to be paired with political pressure?
  • Mamdouh Salameh on March 21 2019 said:
    You and other contributors to the oilprice.com repeatedly make an erroneous claim that the US is the new global oil production leader, followed by Russia and Saudi Arabia. In 2018, US oil production according to the US Energy Information Administration (EIA) averaged 10.9 million barrels a day (mbd) compared with 11.43 mbd for Russia and 11.0 mbd for Saudi Arabia. Therefore, the world’s top oil producer in 2018 was Russia followed by Saudi Arabia and the United States. Moreover, this state of affairs is not going to change in 2019 and beyond.

    The EIA claimed that US oil production averaged 10.6 mbd in 2017 when it was actually 9.36 mbd according to the authoritative 2018 OPEC Annual Statistical Bulletin. In 2018, it claimed that US production averaged 11.7 mbd but it admitted later that it was 10.9 mbd. Now the EIA is saying that US production will average 12.3 mbd in 2019 but judging by its record over the 2017 and 2018 figures, we should expect a production of around 11 mbd in 2019 if not less.

    Philip Verleger, a highly respected economist in the United States is projecting a decline of 1-2 mbd in US oil production mostly from US shale oil production by 2020. This could translate into a US production range from 10.0-11.0 mbd in 2019 and 11.0-12.0 mbd in 2020.

    Furthermore, the United States is currently importing 8.5-9.0 mbd leaving a growing deficit of 6.1-6.6 mbd in its oil trade balance which is helping reduce US crude oil inventory and gradually re-balance the global oil market probably by the end of the second quarter this year.

    As for using oil as a weapon in foreign policy, the US is a past master. In 2000 the Encyclopedia of Energy invited me to contribute a chapter titled:” Oil Crises, Historical Perspective” which was published in 2004, Volume 4, pp. 633-648. In it, I argued that contrary to common belief, the Americans, not the Arabs, were the first to wield the oil weapon. They used it against Japan when on July 25, 1941, the United States announced a freeze on Japanese funds necessary for Japan to buy American oil, which, in practice, meant an embargo on oil. The US oil embargo was an important factor leading Japan to attack Pearl Harbour thus bringing the United States into World War II. Moreover, oil was central to the United States’ invasion of Iraq in 2003.

    The claim by President Trump that the United States protects the oil-producing countries of the Arab Gulf is a brazen and crude attempt of blackmailing these countries and getting US hand on their money. Another discredited claim is that the US is protecting the global oil supplies and global sea shipping lanes. The US has its Central Command based in Qatar to ensure that it controls global oil supplies on the premise that whoever controls these supplies and oil’s shipping lanes and chokepoints controls the global economy.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • John Di Laccii on March 25 2019 said:
    The West is acting as a poor junkie additced by all means to Saudi oil, whereas Saudis are jerking off on that, playing with the West and energeticaly blackmailing it. The West can do better than that. It is better to be dependent on US LNG than enything that comes from a country which wants to eradicate the West. The West can do better than that, and if it happens, ME is financialy done, as it deserves. Hollow pathetic web of talks about melting pots is realy not needed.
  • Lee James on March 25 2019 said:
    The U.S. use oil for geopolitical advantage? Maybe if U.S. oil were more sustainable. The main reason our production is up is because too many shareholders mistake volume of production for sustainable cash flow.

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