It’s easy to forget now, but just a few short years ago the United States was the biggest oil importer in the world by a considerable margin, and sold exactly zero barrels internationally thanks to laws prohibiting the export of U.S. oil. This now sounds like an absurdity thanks to the shale oil and gas renaissance, ushered in by hydro-fracking, that has allowed the U.S. to become a major oil exporter to Europe and Asia alike. Now, thanks to political turmoil and oil sanctions in exporting powerhouses Iran and Venezuela, the U.S. is ready to step into their place and inch ever closer to what was once unthinkable–becoming a net oil exporter.
At a global oil trading industry gathering last September, oil producers from the United States came well prepared to usher in the new era of U.S. oil exports. Exxon Mobil, for one, along with their European competitor Royal Dutch Shell, came armed with brochures explaining in detail the different grades of U.S. crudes as well as all the reasons they are the perfect replacement for oil traditionally bought from Middle East, Africa and Russia for import to Asia.
So far, the strategy has been a smashing success. U.S. oil exports to Europe have hit record highs over the last year, doubling over the course of 2018 to reach 430,000 barrels per day (bpd). This year exports have continued to soar, breaking records already in January with 630,000 bpd sent to Europe alone. While this is still less than imports from Russia or Iraq, it puts the U.S. ahead of other OPEC producers like Nigeria and Libya.
A big factor in the massive success of U.S. crude in overseas markets is the massive amount of output from the Permian Basin, creating a crude glut and driving down U.S. crude prices to a level that international markets are hard-pressed to compete with. “U.S. crude is a real headache. It puts a lot of pressure on regional light grades. In fact, prices for all grades are affected because it is such a significant extra supply,” a European trader representing Russian oil was quoted as saying by Reuters.
Other major oil producers have already been forced to lower their own prices and enforce production caps. OPEC and other outside producers like Russia have cut their output by 3-4 percent since 2017 in an attempt to combat falling oil prices. The strategy has been a successful one for the most part, with prices doubling from their lowest point up to $60 per barrel, but without a doubt the international market will continue to feel the squeeze over the course of the year.
This United States crude glut (and subsequent low prices) is only going to continue to grow over the next year. According to government statistics, in 2019 U.S. crude production is projected to skyrocket another 1.18 million bpd over last year, reaching an expected approximate average of 12.06 million bpd. Looking further than 2019, predictions show that U.S. crude could grow to reach up to 15 million bpd of crude and up to 20 million bpd of total oil liquids. With these numbers, the country would be able to be completely oil-autonomous, producing more than enough to feed the domestic demand of 18-19 million bpd.
While U.S. crude volume and prices have been the driving factor of the nation’s rising influence in international oil markets, it’s certainly not the only factor. In this case, as in almost every other, economy cannot be divorced from politics. U.S. sanctions on Venezuela and Iran have lent a big helping hand, discouraging nations around the world from buying oil from the two targeted nations lest they fall into the bad graces of the world’s largest economy. The numbers that the U.S. is celebrating now–430,000 bpd to Europe over 2018–is around the same level that Iranian imports were at before the Iran nuclear deal was revoked, and a fresh round of sanctions were introduced.
With politics in Venezuela more volatile than ever (with some notable encouragement from the U.S.), and Trump’s tough-on-Iran stance showing no signs of slowing, it looks like U.S. foreign policy will continue to spell major success for U.S. crude in the European and Asian markets.
By Haley Zaremba for Oilprice.com