When Congress lifted the 40-year ban on crude oil exports in 2015, lawmakers set in motion forces that have roiled global markets and undermined the position of the once-mighty Organization of Petroleum Exporting Countries (OPEC).
U.S. oil exports averaged 900,000 barrels per day in the first half of 2017, up 300,000 barrels per day from the same period last year, according to data released in October by the Energy Information Administration (EIA).
EIA data also show the United States set a record by exporting two million barrels of oil per day (BOPD) in late September, a figure that declined to about 1.8-1.9 million BOPD by mid-October as a result of Hurricane Harvey, which temporarily disrupted production in the Gulf of Mexico. In addition to crude oil, exports of propane and distillate rose to 900,000 and 1.3 million barrels per day, respectively, the EIA reported.
American crude oil found its way to 27 countries in the first half of the year, up from 19 a year ago, EIA stated. Canada remained the largest recipient of U.S. crude oil exports, receiving 248,000 BOPD in the first six months of 2017. In second place was China, which averaged 163,000 barrels per day in the first half of the year, a hefty increase of 154,000 BOPD over the same period in 2016.
Higher Exports and Rising Imports
As U.S. crude oil exports have risen, so too have U.S. imports of foreign oil. EIA data show U.S. oil imports averaged 10 million BOPD from about 70 countries in 2016, as the increasingly robust U.S. economy demanded fuels from both domestic and foreign sources. In a practice the industry calls “round trips,” after tankers bringing oil to the United States unload their cargo, instead of departing empty they are now loaded with U.S. oil to be delivered to overseas customers.
Rep. Joe Barton (R-TX), vice chairman of the House Energy and Commerce Committee, told the Washington Examiner on October 30 U.S. oil exports are having a positive geopolitical effect by displacing OPEC oil, effectively undermining the oil cartel’s ability to set prices. Backed by strong private equity and private credit markets, U.S. producers can arrange for financing of oil sales to customers around the world, Barton said.
Oil Cartel vs. Private Enterprise
OPEC is primarily a government-driven or heavily government-influenced enterprise in which decisions about pricing and production levels are often influenced by geopolitical considerations, Barton says. By contrast, he says, customers purchasing U.S. crude are dealing with companies where the sanctity of contract prevails.
“Our oil companies are about finding oil as efficiently as possible, producing it as efficiently as possible, and getting the best market for it that maximizes profit,” Barton said. “And our system is better,” Barton told the Examiner.
Another factor working against OPEC is the quality of American crude oil. Unlike the heavy oil produced by many members of OPEC and by Mexico, U.S. crude from shale formations is what the industry calls light and sweet, making it easier and less expensive to refine.
Radically Altered Oil Markets
Craig Rucker, executive director of the Committee for a Constructive Tomorrow, says the days of OPEC and Russia dictating oil supplies and prices are at an end now that fracking has opened up oil production from U.S. shale deposits.
“The days when OPEC could set the price and production levels for oil globally are over,” said Rucker. “The same holds true for Russia’s ability to call the oil shots on a regional basis.
“America’s shale revolution—made possible by the gifts of geology, innovations in drilling technology, and mineral rights on private land—has confined the idea of an all-powerful oil cartel to the dustbin of history,” Rucker said.
Chuck Daniel, president of the Caesar Rodney Institute, says the Trump administration’s break with the energy policies of the Obama era is permanently altering energy markets.
“Now that Trump is lifting regulatory restrictions on fossil fuels and withdrawing the U.S. from the Paris Climate accord, we can allow fracking and other innovations to reach their true potential,” said Daniel. “Global energy markets will never be the same.”
Bonner R. Cohen, Ph.D. ([email protected]) is a senior fellow at the National Center for Public Policy Research.