A voracious thirst for petroleum makes the US one of the largest importers of oil. But for the past two weeks it has also scaled the ranks of exporters.
Outbound shipments of crude have surpassed 1.2m barrels a day, more than last month’s daily production of Algeria, Ecuador or Qatar, each a member of Opec.
The foreign sales underscore how the US has become more integrated into the world oil market since Washington lifted 40-year-old constraints on crude exports at the end of 2015. The US continues to import much more than it exports but its oil companies now have the freedom to market barrels abroad when it makes economic sense.
The situation presents a further challenge to Saudi Arabia and other Opec members, which historically held the power to turn supplies on and off when needed.
Or as Timothy Dove, chief executive of Pioneer Natural Resources, told analysts this month: “We’ll be significant swing producers in terms of worldwide supply.” He noted the oil company soon planned to export to Asia two 525,000 barrel cargoes produced in the Permian basin of Texas.
US crude oil exports initially increased modestly after the export ban ended, partly reflecting the fact that sales had already been allowed to Canada. The shipments this year have blown past those levels and far exceed the baseline projections that the US Energy Information Administration made before Congress rescinded the restrictions.
In the year to date, US oil has been exported to destinations including eastern Canada, Spain, Singapore and China, according to ClipperData, a tanker tracking service. The shipments include not only high-quality shale types such as West Texas Intermediate crude but heavier grades pumped offshore such as Southern Green Canyon, according to ClipperData and industry executives.
Several factors explain the strong exports.
First, the US in particular has felt the weight of an oversupplied world oil market. Crude stocks on the Gulf of Mexico coast — the leading region for US oil production, refining and trade — totalled a record 275m barrels as of mid-February. They ballooned in part because of a surge in imports from producers such as Saudi Arabia and Iraq that had shipped out late last year. Glutted local conditions made US oil a relative bargain compared with other grades.
Second, a rebound in oil prices from the depths of early last year has also emboldened US companies to increase drilling. The EIA estimates domestic production is above 9m barrels a day for the first time in 10 months.
Third, US refineries have not done much lately to mop up the glut. On the Gulf coast their consumption of crude has dropped by more than 1m b/d since the start of the year as some undergo seasonal maintenance.
Fourth, the rate to lease a supertanker has declined, making it economical to shuttle cargoes around the tip of Africa to Asian markets. Abudi Zein, chief executive of ClipperData, says that very large crude carriers (VLCCs), the biggest type of tanker, are cheap to rent in the US because they would otherwise return empty to the Middle East after dropping off cargoes.
“There’s a nearly limitless supply of empty VLCCs,” he says.
Mr Zein says traders have become inventive in finding ways to move US oil overseas. Since no port on the US Gulf coast is deep or wide enough to load a VLCC, oil is instead ferried out on smaller vessels and funnelled into VLCCs moored at sea.
Opec itself has had a hand in spurring US exports. The cartel’s agreement with 11 non-members to curtail output starting January 1 has led to concerns about tighter supplies in Asia. This has given American grades of oil a competitive toehold, with one-month forward prices for West Texas Intermediate selling for less than Dubai crude, a lower-quality grade from the Middle East.
Industry executives and analysts are conflicted over whether exports will continue at such high rates. They have certainly become easier as new infrastructure links US oilfields with docks. One such facility is Occidental Petroleum’s Ingleside terminal in Texas, which opened late last year and can ship out 300,000 b/d.
However, the US’s continuing status as a big oil importer suggests export flows will depend on the circumstances.
“The prices have opened up the opportunity to export, but it’s not opening the floodgates,” says Sandy Fielden, director of research for crude and products at Morningstar. “It is simply an opportunity the traders have taken advantage of.”
