Record High US Shale Exports May be the Future Norm, Say Experts

Friday February 17, 2017

Analysts have one thing to say about U.S. producers exporting a record 7 million barrels of crude and growing its stockpiles to a record 518.2 million barrels last week: get used to it, because this is the future.

The Energy Information Administration's weekly inventory data revealed that U.S. export volumes were roughly the same amount that the Organization of the Petroleum Exporting Countries (OPEC) have reduced under its cutback agreement; it also showed that U.S. oil production held steady last week at just under 9 million barrels per day (bpd).

The numbers prompted Tom Kloza, head of global energy research at Oil Price Information Service, to state, "This is the future; it's not what it was in the shale boom, where there was just too much production, and we had these big discounts for crude in the United States."

Kloza added, "We're raising our output and it has more than a parochial impact: it's not so much that it makes the U.S. inventories unwieldy, it's that it adds to the global inventory.

"That really is the concern in the global oil market: we tend to import the medium and heavy [grades of crude, and] I'm sure most of the exports are light sweet oil."

Of the increased outbound U.S. crude, John Kilduff, founding partner of Again Capital, remarked, "We're seeing cargos go out to Asia more and more; we've been waiting for this to happen.

"It's incredible that we were able to put 9.5 million barrels into storage last week, while exporting a million barrels a day."

While no one was willing to guess whether the levels of production or export are sustainable in the long run, Andrew Lipow, president of Lipow Oil Associates, told CNBC that the volume of exports will grow for the foreseeable future: "The infrastructure continues to get built out to export more and more crude oil; not only have we built pipelines, but we built more export terminals.

"The industry continues to add infrastructure to support more exports."

But there is trouble with the volume of exports, and it has nothing to do with angering OPEC producers who are trying to abide by their cutback quotas: Helima Croft, global head of commodity strategy at RBC Capital Markets, said if too many U.S. barrels go to market at the same time sweet crude producers Libya or Nigeria ramp up, this could result in a choking of the market: "We called it the Nigerian barrel last year,'" she said, adding oversupply of light sweet crude would start to weigh on oil prices.

And as Kloza points out, the biggest concern is of course the over saturated global inventory, which despite OPEC's efforts continues to be attacked from all sides: in addition to U.S. contributions, Iraq crude shipments rose 3 percent in the first half of this month, to 3.93 million bpd (122,000 barrels per day more than the average for all of January, according to port-agent reports and ship-tracking data compiled by Bloomberg).

Iraq had pledged to OPEC to decrease production by 210,000 bpd from the 3.91 million it pumped last October.

Rising production levels overall seem inevitable: Jim Krane, a fellow at Rice University's Baker Institute, told media earlier this week that the temptation to boost output may be overwhelming: "It'll be tougher for the Saudis and some of the other Gulf producers to hold production steady during the late spring and through the summer; other producers will be tempted to try and meet surging summer demand rather than hold the line and allow prices to increase."