Oil from the U.S. Gulf of Mexico holds an edge over shale on the export market, but it may take some discipline to exploit, market analysis finds. File photo by A.J. Sisco/UPI | License Photo
Nov. 2 (UPI) -- Big energy companies with deep pockets could carve out a durable U.S. position on the global energy market with offshore production, analysis found.
The U.S. Energy Information Administration reported total crude oil exports topped 2 million barrels per day for the first time since a 40-year-old ban on exports was lifted under President Barack Obama in 2015.
Geoffrey Craig, the oil futures editor for commodity pricing group S&P Global Platts, said in an emailed report that exports were supported by the lower price for West Texas Intermediate, the U.S. benchmark for the price of oil, relative to Brent, the global benchmark.
"This trend [for exports] is not surprising with Brent's premium to WTI growing from approximately $3 per barrel in mid-August to $5-$7 per barrel most of the time since September," he said.
WTI was less than Brent by about $6 per barrel early Thursday. That means U.S. oil is competitive on the open market when compared to other grades.
Craig said another factor supporting exports is that total U.S. crude oil production has been, at around 9.5 million barrels per day, about 1 million bpd higher than last year, even as market pressures continue to constrain some spending.
Most forecasts point to the booming Asian economies as the likely source of future demand and, in October, U.S. shale producer Continental Resources said it designated its first-ever batch of oil for the Chinese market.
Sandy Fielden, the director of research, commodities and energy at Morningstar, said oil from the U.S. Gulf of Mexico may be more attractive to Asian markets than the "low-hanging crude export resource" like inland shales, which are lighter than the medium grades of oil that overseas refiners are tooled for.
"In the current circumstances, we believe that Gulf of Mexico producers could grab a permanent share of this market in coming years," he said in an emailed market report.
U.S. Interior Secretary Ryan Zinke said the next auction of more than 75 million acres of federal waters in the Gulf of Mexico, slated for early next year, will be the largest ever in the national history of offshore development. The government estimates the lease area holds as much as 1.1 billion barrels of oil and 4.4 trillion cubic feet of natural gas
Cindy Giglio, a principal energy merger and acquisition analyst at IHS Markit, told UPI last week that the Gulf of Mexico is an attractive return on investment, in part because of existing infrastructure and an available workforce.
Fielden, meanwhile, said deepwater production probably won't ever be cheaper than other markets, but it needs to stay competitive because most international refiners aren't configured to process the type of oil found in the Lower 48 states. Because of this, he said, oil from the Gulf of Mexico has an edge on the export market, but if companies want to take advantage of that, they need to be disciplined.
"While smaller U.S. independent producers have made shale their forte, major oil companies and larger independents have deep experience offshore," he said. "Now that exports are on the table, the majors could easily leverage their home plate advantage to grab a larger international market share-provided they are willing to roll the dice and invest."