The United States is now the largest oil producer in the world and, this increased production is disrupting global oil markets. US production is now at a record 12.1 million barrels a day more than that of Saudi Arabia or Russia.
US to become a net exporter of oil
US exports are more than three million barrels a day above that of many OPEC countries. Daniel Yergin of IHS Markit said: "Within the next two or three years, the U.S. will be a net exporter. By the end of the year, the U.S. will be producing 13 million barrels a day. This growth is a seismic event for the U.S. economy at this scale. U.S. oil production is 2.5 times what it was in 2008."
US shale production has created a problem for markets as it increases a great deal as prices go up creating a supply glut but then is cut back as prices slide back. To stop the glut Saudi Arabia and other OPEC members in cooperation with Russia have tried to reduce or add supply to the market depending on conditions.
Trump has made the US more active in the market
Helma Croft, head of commodities strategy at the Royal Bank of Canada said: "It's really become such a huge story in terms of U.S. production, but also because of our policy. The U.S. is a swing producer but it's also through policy that we've taken 1.6 million barrels off the market. We've been really lucky we've had the U.S. producers. That's where the U.S. currently plays a role in helping out the market. Trump talks to the Saudis. Trump sanctions Venezuela. He's really active in the market. Have we had a U.S. president be this consequential in the oil market, in terms of intervention?"
Trump has added to market volatility by introducing sanctions against countries such as Venezuela and Iran. However, he has also granted waivers on the sanctions after saying he would not. India and others were granted waivers last fall. Iran exports are now about 1.1 million barrels a day but this is still down from the 2.5 million the exported in the spring. The waivers come up for review in May so if they are not extended then even more Iran oil will come off the market.
Market volatility likely to continue
Carlos Pascual, IHS Markit senior vice-president said: "It's going to be a market with tremendous volatility. In 2018, the price of [Brent] oil went between $50 and $86 a barrel, but the average was $70. For the person looking at it and saying '$70, that's not a big deal,' depending on when you were buying, what country and what situation, the difference between $50 and $86 could be huge. We're looking at a similar kind of [oil] market in 2018. A lot of volatility and an average that keeps us in a similar range of $70 a barrel. In that sense the sanctions on two OPEC members could potentially add to some of the uncertainty and volatility around that market."
The Saudis are committed to cutting back production to 9.8 million barrels a day after they had been putting almost 11 million barrels a day on the market last fall. As both the Saudis and Russia agreed to cut production prices began to increase again.
However, some Trump tweets still complain about high prices. Franciso Blanch, of Bank of America Merrill Lynch said: "Trump seems to have picked up a fair amount of influence over OPEC and certainly the oil market has started to fear the Trump effect. Whenever he tweets prices shouldn't go higher. The fear is the Saudis will follow and deliver, as they have so far. Shale will deliver if the Saudis don't."
The cost of production from shale has been dropping as well. Just this past week, Chevron and Exxon announced they are increasing production in the Permian Basin. Exxon said production in the basin would still be profitable even if oil prices dropped to $35 dollars a barrel.
United States may become the world's biggest oil exporter within five years
The International Energy Agency (IEA) makes the prediction that the U.S. will soon become the world's biggest oil exporter in a recent article. By 2024 the IEA predicts that US exports of crude oil and petroleum products will almost double to about nine million barrels per day (bpd) . At this level, the US will be exporting more than Russia and will threaten to overtake Saudi Arabia as the top exporter.
Just weeks ago, the US exported a record 3.6 million bpd of crude oil. The US is also a major exporter of petroleum products such as refined fuels.
IEA executive director Faith Birol said: "The second wave of the U.S. shale revolution is coming. It will see the United States account for 70 percent of the rise in global oil production and some 75 percent of the expansion in LNG trade over the next five years. This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy."
While the IEA thinks that the development of electric vehicles (EVs) will sap some of the demand for gasoline, it thinks that this will be offset by rising demand for petrochemicals and jet fuel. Demand is increasing in the US as Birol notes: "US oil consumption [growth] last year was about a half-million barrels per day, and as such it was the highest in all the countries around. It was the first time that the United States in the last two decades was the No. 1 driver of oil consumption growth." Surprisingly this happened as global economic growth has slowed.
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