Edit’s note: this story originally appeared in the Midland Reporter-Telegram on March 2, 2017.
By Mella McEwen
Barely a year after the 40-year-old ban on exporting U.S. crude was lifted, exports surged to more than 1 million barrels a day in the first two weeks of February.
The surge came after exports had averaged a little over half a million barrels a day through November, according to the Energy Information Administration. The weekly EIA report showed increases in December and January and then a jump to 1.2 million barrels a day for the week ending Feb. 17.
Sandy Fielden, director, oil and products research for Morningstar, said in a research note provided to the Reporter-Telegram, that the surge was in response to the production cuts implemented by the Organization of Petroleum Exporting Countries. Fielden said indicators are that most of the crude is being shipped to Asia.
“Ultimately, it goes back to a part of the industry I’m not an expert in, and that’s refining,” said Jared Blong, co-founder, president and chief executive officer of Midland-based Octane Energy.
Blong said in a telephone interview that the blends of crudes used by refiners to make refined products is not unique to the United States. The unexpected rise in exports of U.S. crudes “is more a function of demand — not how much oil but what kind and where it’s needed,” he said.
In his research note, Fielden called the export surge opportunistic rather than systemic, noting that the United States continues to import about 8 million barrels a day. The country may not become a regular exporter until domestic production has risen to the point there are excess barrels that need to be exported.
Blong said exports “shifted the benchmark, which was our hope. Brent (grade) had been the leader for a long time, but our goal was to shift the benchmark to where West Texas Intermediate was not traded at such a price discount.
“The crude we’re exporting is a premium product and offers more upside to refiners if they’re geared right to take it in,” he said.
The fact that the amount of exports is larger than anticipated “tells me there’s a market for it,” he said.
With all the uncertainty surrounding OPEC, “the U.S. oil machine is highly efficient and producing a premier product that, of course the globe wants,” Blong said. “It’s reliable and affordable.”
But Blong cautioned that OPEC nations should not be dismissed.
“For us to haphazardly and egotistically disregard the cartel, that’s reckless,” he said. “Saudi Arabia has exerted supply control and influence on oil markets, and for us to disregard them as a trading partner and a rival is foolish.”
Technology and efficiency may give the U.S. a competitive edge, “but (the Saudis) have the best geology,” he said.
Blong said the U.S. needs to follow OPEC’s example in understanding market share and build on the relationships it is starting with these early exports.
“We now have to enter and develop collaborative relationships elsewhere so that overseas customers build refineries or renovate refineries to take our crude,” he said.
There will never be a time when the U.S. is not importing oil, he said, but “the function has changed to one of trade instead of necessity. The benefit of lifting the oil ban is we have options now. The world has options now.”