U.S. oil exports could be driven by OPEC's balancing act

Higher oil prices, which are supported by an OPEC effort to drain the market surplus, could be incentivizing U.S. shale.
By Daniel J. Graeber  |  Feb. 16, 2018 at 9:21 AM
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Feb. 16 (UPI) -- U.S. shale oil barrels that find their way on the international market could have the Organization of Petroleum Exporting Countries to thank, analysis suggests.

The United States is now rivaling Saudi Arabia, and could soon dethrone Russia, in terms of production with output at an average of 10 million barrels per day. A ban on oil exports from the United States ended in 2015, just as the shale oil boom was hitting its stride and, with production accelerating, more U.S. barrels are on the open market.

For the week ending Feb. 9, total U.S. crude oil exports averaged 1.3 million barrels per day. The four-week moving average for exports is more than double the rate from the same period last year, federal data show.

U.S. oil exports are supported in part by the spread, or difference, between the price for Brent crude oil, the global benchmark, and West Texas Intermediate, the U.S. benchmark. As of early Friday morning, Brent was about $3 per barrel more than WTI, meaning its cheaper to buy for foreign clients with an appetite for the lighter U.S. type of oil. That spread was closer to $6 per barrel during the last four months of 2017, but that hasn't yet put a damper on the appetite for U.S. crude.

Sandy Fielden, the director for oil and products research at Morningstar, said localized differences in the price of oil matters for exporters and the market remains ripe for U.S. exports so long as demand holds up.

"In this market battle, shale exporters are supported by the OPEC/non-OPEC producer agreement to cut production, which hands them market share while the cartel protects higher prices," he said in an emailed market report.

OPEC a few years ago was defending a market share with robust production, which tilted the market heavily toward the supply side and left the price of crude oil around $30 per barrel.

OPEC, with support from non-member state producers like Russia, is now in the second year of an effort to balance an oversupplied market with production cuts. The balancing act helped set a floor under the price of crude oil at around $50 per barrel, which is enough to stimulate more U.S. shale oil production, a sector that's been more resilient to historically low crude oil prices than expected.

Recent rhetoric on extended and expanded support for OPEC's market stance led some analysts to speculate a supply deficit was the new target, along with even higher crude oil prices.

Global demand expectations, fueled in part by optimism over the acceleration in the world's economy, helped push crude oil prices to multi-year records last month. Separate analysis emailed from UBS found demand, meanwhile, could be even more robust than initially projected.

"Future energy demand growth will be derived from emerging markets, where some have laid out ambitious economic development plans," the report read. "As such, global energy demand growth will shift further from developed to emerging economies, where gross domestic product and population growth outpaces the developed world."

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