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Energy Superpower USA: American Oil Exports Double, Reshaping Global Energy Markets

The Wall Street Journal

American oil exports are emerging as a disruptive new force in global markets.

The U.S. exported 1 million barrels of oil a day during some months so far this year—double the pace of 2016—and is on track to average that amount for all of 2017, according to a Wall Street Journal analysis of data from the U.S. Energy Department and the International Trade Commission.

In another era, a domestic glut and low prices, currently hovering under $50 a barrel, might have caused companies to slow the pace of drilling. But since Congress lifted a ban on oil exports at the end of 2015, shipments out of Texas and Louisiana have skyrocketed, taking the fruits of the U.S. fracking revolution to new markets.
“The glut of crude around the world, coupled with extremely low prices to rent oil tankers, is upending petroleum flows,” said Kurt Barrow, vice president at consulting firm IHS Markit.
While U.S. exports make up just 1% of global oil volumes, they are a new factor helping to tamp down prices and keep them rangebound between $45 and $55 a barrel. U.S. oil prices on Wednesday declined more than 4% to around $46 a barrel after weekly inventory data showed a surprise increase in stockpiles.

Exports represent a relief valve for U.S. drillers, who are ramping up production at a pace to surpass 10 million barrels a day, a new record, by next year if not sooner.

The U.S., which shipped more than 110 million barrels to foreign buyers from January to April, according to ITC data, is benefiting in part from a decision by the Organization of the Petroleum Exporting Countries to temporarily reduce output.

The U.S. still imports a lot of foreign crude, averaging 10 million barrels a day last year, because it is the world’s No. 1 oil consumer. But that level has dropped sharply in recent years.

A major reason why U.S. exports are rising is that American crude has been selling at a discount of roughly $2.50 a barrel to the international oil-price benchmark, Brent, for much of this year.

That spread makes it profitable to pay to transport U.S. oil to farther flung locales. If U.S. oil’s discount to Brent gets bigger, American shipments will ramp up. If it shrinks, less U.S. oil will flow overseas.

Another big reason for the increase in exports is so-called back-haul economics, said Mason Hamilton, an analyst with the Energy Department. Tankers carrying crude from the Middle East to Texas used to unload and go home empty. Now U.S. oil can be loaded on those tankers and make a pit stop in Europe on their way back….

China, the world’s largest oil importer, traditionally gets more than half of its crude from OPEC members like Saudi Arabia, Angola and Iran. But China, which imported a record 8.6 million barrels a day in December 2016, is stepping up imports of U.S. oil, as well as crude from Brazil, after its own production dropped significantly last year, according to the Energy Department.

“We believe that more U.S. oil production will be needed to meet future global demand and offset production declines in China and Mexico during 2017 and 2018,” said Rob Thummel, managing director for Tortoise Advisors, an energy investment adviser with $16.8 billion under management.

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