The global market for American oil has never been stronger. Oil exports have been so robust, especially over the past couple of quarters, they have actually given the economy a boost and narrowed stubborn trade gaps with several countries, ones that have lasted years around the world. Trade deficits fell 2.1% in April, the second straight month that such contractions were seen. U.S. petroleum products worth nearly $20 billion went out into the world in April alone, a record by any measure, even when adjusting for inflation and seasonal influences. In absolute quantities, monthly exports of American petroleum, both crude and refined, have been four times the levels seen just 10 years ago, according to the Commerce Department.
With no sign of a slowdown evident, the upward trend is set to continue. U.S. oil producers exported at least a million barrels a day since November. The month of March saw more than 2 million bpd of crude exports, and April saw exports average at 1.76 million bpd. Exports surged to 2.5 million bpd in the month of May.
What Feeds the Exports?
While there have been steady rises seen in production, these alone do not account for the country’s burgeoning exports. American shale, it turns out, isn’t well-suited to the technologies employed by American refineries. With only a small portion of America’s oil output retained for domestic use, then everything else is superfluous, free to export all over the world to refineries in countries that are better equipped to process it.
Discounting is another factor that is at play. Compared to Brent, WTI prices were discounted $3 a barrel in April; the discount rose as high as $6 a barrel by the end of May, and was at the $8 level past that point. A weaker U.S. dollar has contributed, as well. Such aggressive pricing has hit OPEC’s bottom line, with Asian importers vowing to switch entirely to American oil if OPEC fails to match American prices. At some point in the near future, the U.S. is all set to overtake Saudi Arabia to become the world’s #1 oil exporting nation.
Will Prices Remain Robust?
Technically, oil prices could become volatile and less stable. Unchecked backwardation (where futures are traded at a premium) and contango (where futures are traded at a discount) often have such destabilizing effects. According to Sigma Drilling Technologies, manufacturer of critical pulsation dampeners and suction stabilizer products, prices may not actually drop. Shale producers in America have demonstrated remarkable restraint. Rather than drill new wells willy-nilly, they have drilled at a sustainable pace.
How Likely Is It That Exports Will Continue to Boom?
WTI oil has traded at a discount for the simple reason that American producers dealt with severe inventory gluts following damage to infrastructure caused when Hurricane Harvey struck. Oil producers had to unload their inventories at a discount. Now that those necessities no longer persist, prices are likely to move closer to Brent’s price levels, something that can make American oil seem less attractive.
As American producers ramp up output, prices are expected level off at some point in the near future. Importers around the rest of the world then may not see American oil as all that attractive. Yet many industry observers tend to not see price rises as a real threat. At this point, American oil rules for its high quality and competitive pricing, and drillers are doing their best to keep the market well supplied.
