Energy & Environment

With ban lifted, US oil exporters starting to flex their muscles

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During the first four months of 2017, the U.S. exported three times more crude oil to international counterparties than during the same timeframe in 2016. Including shipments to Canada, exports of crude oil exceeded 1.0 million barrels per day (bpd) in both February and April.

Volumes of this magnitude leaving the U.S. has not only changed the domestic crude oil story, but also has altered global trade flows. Going forward, Platts Analytics is forecasting that U.S. exports will continue to rise and will become an increasingly important outlet to balance the U.S. crude oil market in the years to come.

Quality mismatch leads to surging inventories

{mosads}Exporting crude oil from the U.S. had been banned for four decades, with the exception of permitted volumes to Canada, until the end of 2015. For most of this timeframe, domestic production gradually declined, making it necessary for refiners to import different types of crude oil from international sources. The “shale revolution” changed everything.


From the beginning of 2010 to the middle of 2014, U.S. production increased by 62 percent, or 3.3 million barrels per day (bpd), with year-on-year production growth reaching double-digit percentages starting in 2012. Even after prices fell precipitously in mid-2014, U.S. production continued to rise, reaching a peak of 9.6 million bpd in April 2015. 

Surging U.S. production significantly impacted trade flows into the U.S. from 2010 until the end of 2015, not only because of the rapidity of the growth, but also because of the quality of the crude oil being produced. Production from U.S. shale plays, which drove the bulk of the increase, primarily produce light-sweet crude and condensate.

These barrels are low in density and sulfur content, ideal for refineries that have simple configurations. Many U.S. refiners, however, invested in making their refining capabilities highly complex, particularly on the Gulf Coast. These refiners typically take a wide range of crude oil qualities in order to optimize their refinery’s capabilities, often taking advantage of cheaper international crude oils that are high in density and sulfur content. 

In 2010, the U.S. was importing more than 1.0 million bpd of light-sweet crude (excluding Canada) into PADD 3, which houses the Gulf Coast refining complex. By 2014, U.S. shale production had replaced nearly all foreign imports of light sweet crude into PADD 3, bringing imports of light sweet crude oil to less than 20,000 bpd in both 2014 and 2015.

Despite the refineries in PADD 3 backing out nearly all of their imports of light sweet crude, surging supply from the U.S. shale plays grew to exceed domestic demand, resulting in U.S. commercial crude oil inventories rising by 106 million barrels during 2015 alone.

Mismatch relieved: OPEC cuts, Asian demand and an outlet for U.S. production

On the back of OPEC’s decision to cut production in late-2016, the market has been working toward balance, global inventories have begun to draw down, and prices have been considerably higher, year-on-year. Higher crude oil prices have resulted in resurgent U.S. production growth, particularly from the Permian Basin in West Texas.

This play alone is on track to see a production increase of approximately 1.0 million bpd by the end of 2018. Other major shale plays, such as the Eagle Ford, Bakken and Denver-Julesburg are also forecasted to rise during the same timeframe.

Through the first quarter of 2017, only 82,000 bpd of light-sweet imports (excluding Canada) entered PADD 3. As domestic production continues to rise, particularly from plays that are also in PADD 3, imports of comparable quality will be displaced quickly. With the local refining center largely saturated with this particular quality of crude, production increases will either need to enter storage or be exported into the global market.

Global counterparties from Europe, Latin America and Asia have expressed interest in familiarizing themselves with U.S. crude qualities in order to expand their sourcing options. Already, OPEC’s production cut has reduced exports to Asia, the main customer of its crude oil, tightening the East of Suez market.

In addition, as incremental global refining capacity comes online, international sources will demand U.S. light-sweet crude oil to fill their feed slates. Platts Analytics believes domestic production will increasingly be exported to meet these global needs, causing volumes leaving the Gulf Coast region to rise steeply in the near term.

Jenna Delaney is a senior oil analyst at Platts Analytics, a forecasting and analytics unit of S&P Global Platts.

The views expressed by contributors are their own and not the views of The Hill. 

Tags Commodity markets OPEC Petroleum Petroleum politics Price of oil Pricing World oil markets
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