U.S. eating into OPEC market share, Texas economist says

The four-week moving average for U.S. crude oil exports is about equal to what OPEC has decided to cut from total production.
By Daniel J. Graeber  |  June 7, 2017 at 6:12 AM
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June 7 (UPI) -- Producers operating in U.S. shale basins, notably Texas, are eating into a market share abandoned by OPEC, an economist in the state said.

Members of the Organization of Petroleum Exporting Countries and other producers, like Russia, agreed in January to sideline the equivalent of 2 percent of global oil demand in an effort to balance a market favoring the supply side. Parties to the agreement last month decided to extend the arrangement into May 2018.

Karr Ingham, an economist with the independent Texas Alliance of Energy Producers, said U.S. oil was taking up the slack now that exports were allowed under U.S. law.

"Producers in Texas and across the U.S. will gladly take the market share given up by nations that attempt to manage oil markets and prices by centralized decisions to manipulate production," he said in an emailed statement.

The U.S. Energy Information Administration put the four-week moving average for crude oil exports at 927,000 barrels per day, more than double the average for the same period last year. That means the United States is exporting about as much oil as is sidelined by the OPEC-led production agreement.

U.S. oil is becoming competitive in the Asian market in part because of the discount for West Texas Intermediate, the U.S. benchmark for the price of oil, against the Persian Gulf benchmark, Dubai. In early Wednesday trading, Dubai crude had a 50 cent per barrel premium over WTI.

OPEC under previous policies defended their market share with robust production and, coupled with U.S. shale oil production, created a glut that last year pushed crude oil prices below $30 per barrel. Oil prices since the implementation of the OPEC agreement have traded in a band between $45 per barrel and $55 per barrel for most of the year.

"In large part, production growth in Texas and the United States is keeping a lid on crude oil prices, which continues to frustrate parties to that agreement," Ingham said.

Crude oil prices in April, the last full month for which Ingham's group provided data, averaged $47.62 per barrel and production in the state was slightly less than 100 million barrels. The value for Texas-produced oil was 27.9 percent higher year-on-year and production was 2.3 percent than in April 2016.

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