Energy News Today

How U.S. Shale Upended Global Crude Flows

The U.S. removed the ban on American crude oil exports to countries other than Canada in 2015, unleashing a new force on the global oil market to be reckoned with.  Soaring shale production over the past half-decade has not only helped America to reduce its reliance on foreign oil imports, but it has also created a new global player on the market, taking market share from the top exporters, Saudi Arabia and Russia.  

The shale boom—especially in the years 2017-2019 when U.S. exports were no longer restricted—frustrated the efforts of the OPEC+ coalition led by the Saudis and Russia to tighten the market and prop up oil prices. Every time the OPEC+ group succeeded in taking oil prices above $55-60 per barrel, U.S. producers ramped up drilling activity, taking advantage of the higher prices—and ultimately capping gains because of the rising supply out of America. 

OPEC and its key ally in the OPEC+ alliance, Russia, began to consider (albeit not publicly) the U.S. shale response to higher prices when setting production policies. The group has signaled with its policies over the past few years that despite the temptation to rake in more oil revenues with oil above $60, it is unwilling to sacrifice too much market share to U.S. shale by tightening supply too much and lifting oil prices to above the break-evens of the major U.S. shale basins. 

Some of the U.S. shale companies did “drill themselves into oblivion,” as Harold Hamm warned in 2017, after taking on too much debt to pump more and more crude. With prices crashing in 2020, bankruptcies soared, but the United States has already established itself as a key producer on the global oil market. 

Related: Oil Bulls Are Back

It actually had become the world’s biggest crude oil producer in 2018, surpassing both Saudi Arabia and Russia, and has kept that status since then, even with the production decline due to the pandemic. On the other hand, Saudi Arabia and Russia—bound by their OPEC+ cut pact—have been withholding production from the market for more than four years now. 

The U.S. shale boom and the lifting of the export ban resulted in growing U.S. crude oil exports, which averaged nearly 3 million barrels per day (bpd) in 2019, EIA data shows. Since late 2019, average monthly U.S. crude oil exports have exceeded 3 million bpd in every month except May and June 2020. 

Rising exports helped to reduce the U.S. dependence on foreign crude oil from the peak in 2005, and it also mitigated oil price surges when events in the Middle East spooked the global market. 

In a decade and a half, U.S. crude oil imports sank to 6.8 million bpd by 2019, about one-third less than 2005 volumes of more than 10.1 million bpd. 

The U.S. shale boom was one of the reasons why oil prices didn’t soar to triple digits when more than half of the oil production of the world’s top oil exporter Saudi Arabia was knocked offline by attacks in September 2019. Rising U.S. oil exports have…

Read More: How U.S. Shale Upended Global Crude Flows

2021-01-10 19:00:00

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