U.S. Oil Exports Hit Record Levels

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By MarEx 2017-02-24 16:52:53

U.S. oil exporters set a new record last week: shipments leaving the country averaged 1.2 million barrels of crude per day, roughly double the levels seen at the end of last year. 

Analysts told Bloomberg that the rising American exports are driven in large part by falling domestic prices. West Texas Intermediate futures (the domestic benchmark) are trading below the international Brent standard by $2 per barrel or more, and are now cheaper than some Middle Eastern grades of lesser quality. This makes American crude more attractive to Asian buyers. 

There is also an incentive for traders to sell their oil abroad: U.S. storage is costly. If the price of crude is not expected to rise, brokers have no incentive to hang on to their supply and pay rent on a tank to put it in. "It won't all stampede out of the gate, but inventory levels will come down. What will happen is that some of it will go to refineries, but a fair amount will be exported too," said Sandy Fielden, director of oil and products research at Morningstar, speaking to ChannelNews Asia. 

The rising exports may be a cause of concern to OPEC members, who recently joined with Russia to cut exports in a bid to raise prices. Industry analysts expect OPEC output reductions to fall short of their 1.8 million bpd target by 20-30 percent, as they have in the past, bringing total cutbacks into the range of 1.4 million bpd or less. With U.S. exports on the rise, that worldwide supply cut now comes to less than a million barrels per day. 

"We're raising our output and it has more than a parochial impact . . . it adds to the global inventory. That really is the concern in the global oil market," said Tom Kloza of Oil Price Information Service, speaking to Seeking Alpha. "In my opinion, a sharp increase in US oil exports will definitely have a negative effect on oil prices."