High U.S. oil exports the new normal under right conditions

Continental CEO says the spread that analysts say supports U.S. crude oil exports should disappear.

By Daniel J. Graeber

Nov. 16 (UPI) -- The sale of oil from the Bakken shale basin in North Dakota is in fact a "new reality," so long as market conditions are right, an analyst said.

U.S shale player Continental Resources announced late Wednesday it plans to sell 430,000 barrels of oil for January delivery to a trading company that "intends" to export it to China. It's the second such sale announcement made by the company in a month.


"International markets are demonstrating accelerated interest in American light sweet oil, and Continental is currently negotiating additional potential sales," Chairman and CEO Harold Hamm said in a statement. "This is the new reality of the United States as a world energy leader."

U.S. refineries aren't configured to handle large volumes of lighter oil from shale basins in the Lower 48, leaving the country leaning on Canada to support some of the demand for heavier oils. Canada sent 3.3 million barrels of oil per day to the United States last week, up about 4 percent from the same time last year.


Total domestic production last week averaged 9.6 million bpd, while exports averaged 1.1 million bpd. Exports are a novelty for the United States. U.S. President Barack Obama ended a 40-year ban on crude oil exports during his second term in office.

Sandy Fielden, the director of research, commodities and energy at Morningstar, told UPI that Hamm's claims of a "new reality" were accurate because gains in shale oil production mean those barrels need someplace to go because of the domestic refinery configuration.

"More barrels have to find a home in the export market because domestic refineries are not configured to process this much light crude, so long as international prices are higher than domestic U.S. crude," he said. "If prices fall, then U.S. production will slump and there will be less crude available for export."

The spread, of difference, between West Texas Intermediate, the U.S. benchmark, and Brent, the global benchmark, makes U.S. oil competitive in the open market, particularly in Asia. Brent held a $6.45 per barrel premium over WTI early Thursday.

Hamm, meanwhile, said the spread that supports higher crude oil prices could evaporate.

"We expect steady U.S. production and increasing international sales will drive down U.S. inventories and help correct the recent disparity between Brent and WTI prices," he said.


Of all major crude oil benchmarks, only Western Canadian Select is less expensive than WTI.

Canada's export options are limited to the United States currently, though the government aims to change that with more access from western ports. Pipeline company Kinder Morgan has plans to triple the capacity of its Trans Mountain network to support potential Canadian oil exports outside North America.

After Continental announced plans for 1 million barrels of oil for China in October, Fielden told UPI it was a complicated and intricate sale. Continental is selling the oil from the storage hub in Cushing, Okla., which has a rather dense network of pipelines feeding it.

Bakken crude oil could make its way to the market through the Dakota Access pipeline, which would be the more straightforward route. The DAPL artery runs from North Dakota to a hub in Illinois and then on to southern U.S. ports.

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