America’s crude trade balance is changing. On the import front, the decision by petrostates to cut production (with the intention of erasing a global oil glut to help induce a price rebound) is expected to reduce the amount of oil the U.S. buys from Saudi Arabia and Iraq. Those OPEC members have been constraining output since the beginning of the year, but because it takes roughly six weeks to ship crude from the Middle East to the Americas, we haven’t yet started to see a reduction in supplies from the region.
Now, however, analysts are expecting Saudi and Iraqi imports to start declining as those cuts start to make American oil more attractive to U.S. refiners than their Middle East competitors. The EIA explains:
[R]ecent market developments, including the November 2016 agreement among certain members of the Organization of the Petroleum Exporting Countries (OPEC) to reduce production and the recent widening of price differences between Dubai/Oman crude oil and U.S.-produced Mars crude oil, suggest that U.S. imports from Saudi Arabia and Iraq are now becoming less attractive to U.S. refiners. […]
After OPEC announced crude oil production cuts in late November 2016, the relative price of Dubai/Oman crude oil rose because the supply reductions pledged by Middle East producers disproportionately affected medium, sour crudes. In January 2017, the price premium of Dubai/Oman over Mars reached its highest level in more than a year, likely encouraging U.S. refiners to process more domestic medium, sour barrels while reducing imports of comparable grades from the Middle East.
Of course, U.S. oil production has a pivotal role to play in all of this. The shale revolution was the chief reason behind the market oversupply that necessitated these petrostate cuts in the first place, and our rising oil output isn’t just changing how we’re buying crude, it’s also changing how we’re selling it. As Bloomberg reports, our exports are surging to a 24-year high:
Producers and traders shipped out 1.21 million barrels of crude a day from the U.S. in the week that ended February 17, the most in Energy Information Administration data going back to 1993. Domestic output increased to 9 million barrels per day last week, the fastest pace since April, while U.S. refiners used the least crude since October 2015. […]
Local refiners are using as much domestic crude as they can and the remaining incremental production is being exported, Gary Morgan, director for Clarksons Platou Shipping Services USA LLC’s analyst group, said by phone from Houston. “Going forward, most of the increasing production will be for exports. As output moves from 9 million barrels a day to 9.3 million or 9.4 million, three-quarters of that increased output will be for export.”
This is what we mean when we talk about energy security. Thanks to hydraulic fracturing and horizontal well drilling, the United States is in a much stronger position to affect the global oil market, and to weather the ups and downs of said market. Energy independence isn’t an attainable goal, and it never will be—even if we produced more oil than we consumed, the world is too interconnected to insulate ourselves from the effects of supply and demand elsewhere—but improved energy security is a decidedly real concept. Shale oil and gas, more than any other energy story going on in the world today, is strengthening that security for America, and our crude trade balance is starting to reflect that.