Earlier this year, when U.S. crude oil exports hit a record 2.2 million bpd, the figure was hailed as the beginning of a new era that could eventually see the world’s top consumer—and top producer for this year so far— export up to 4 million bpd. Some believe that nothing short of a sharp price spike can interfere with the bright future of U.S. light crude. Indeed, if fundamentals were the only factor at play, that would be the case. Alas, there are more factors that can affect the future of the United States as a major oil exporter.
First, it’s worth noting why exports are growing. It’s not just because of the shale boom. It’s also not only because of the lifting of the oil export ban from the ‘70s. An important reason for the jump in U.S. crude oil exports is the fact that, as Houston Chronicle’s Rye Druzin noted in a recent story, a lot of U.S. refineries are simply not equipped for processing the light crude. They need heavier grades, hence the still existing demand for Canadian and Venezuelan oil, which is heavier than the light crude pumped from the Permian.
Refiners could invest in new facilities that can process light crude, but it is a large undertaking. Still, Chevron is doing it, although, as Druzin points out, it might be the exception. For most, exporting the crude they can’t absorb in the refineries is the preferred option. So, this means exports are set for a rise whatever happens, right? Wrong, of course. There is no such thing as “whatever happens.”
The clearest sign yet that U.S. oil is not yet ready to take over is China’s zero U.S. oil imports in August. Local refiners apparently decided to be cautious amid the deepening trade row between Washington and Beijing, and perhaps see if they can make do without U.S. crude. They did make do: total Chinese oil imports in August went up by 6 percent, hitting a three-month high.
The reason China is important is that as of July 2018, it was the second-largest buyer of U.S. crude after Canada. It took in 23 percent of total U.S. oil exports last year and 22 percent this year until August. That’s more than a fifth of total exports and, truth be told, the receiving country mix is not that great without China. Related: Oil’s $133 Billion Black Market
Sure, U.S. producers are exporting to Japan and India as well, and India is a top importer of crude. But India is also having trouble with its oil bill already, and U.S. oil will be hard pressed to compete with Middle Eastern crude, which is simply a lot closer to India, and hence cheaper.
South Korea is also a buyer of U.S. oil, and it has a stronger economy than India and could therefore afford costlier U.S. crude for a while, especially after it cut its imports of Iranian oil to zero in anticipation of a pat on the head for complying with Washington’s request for Iranian import cuts to zero. Japan is a staunch ally and a major oil importer, so that’s good for U.S. exporters, too.
Some European countries, notably the Netherlands, the UK, and Italy, and to a lesser extent France and Denmark, are also buyers of U.S. crude, but the amounts they need are too low to spur a true export boom. In fact, Morgan Stanley warned about this earlier this year, before the U.S.-Chinese trade spat grew into a heated conflict. The prospects of oil demand growth in Europe are “modest at best.”
On top of it all, the new emission rules of the International Maritime Organization will spur demand for heavier crude, and U.S. shale producers may be forced to discount their crude to enhance its competitiveness. Or maybe some of them will start investing in local light crude refining capacity. After all, the U.S. is the largest oil consumer globally.
By Irina Slav for Oilprice.com
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Even with the dubious claim that US crude oil exports hit a record of 2.2 million barrels a day (mbd), the US will still import 9.12 mbd in 2018 based on an estimated domestic consumption of 20.12 mbd and a production of 11 mbd.
Any US exports of extra-light oil which most US refineries can’t refine, will be offset by an equivalent volume of imports of heavier crudes which American refineries can refine.
US oil exports are no more than an exchange between extra-light oil and heavier crudes with no real net addition to the global oil market and the US is destined to remain a major oil importer well into the future.
So the talk about us oil self-sufficiency and claims that US production has overtaken those of Russia and Saudi Arabia are no more than self-delusion and wishful thinking.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
It is also incorrect to say that US production has not made a "net addition to the global oil market". US production is now 11 MMbpd which is about double what it was less than a decade ago. Of course that additional production is a net addition to the global market. US refineries may be limited in how much light crude oil they can handle, but US inputs are not zero either.
Also, a significant amount of current US crude oil imports are refined and exported as gasoline and diesel fuel. The US is not self sufficient (and that claim was not made in this article), but its "true" crude oil import volume (required by US consumption) is much less than 9 MMbpd.