US Oil Exports Hit Record High and Won't be Slowed by Rising Costs: Analysts

by Ship & Bunker News Team
Tuesday June 6, 2017

As the Organization of the Petroleum Exporting Countries (OPEC), Russia, and other producers prepare to continue their crude production cutbacks until March of next year, word comes that the U.S. exported a record 1.3 million barrels per day (bpd) last week — just half a million barrels less than the daily cuts agreed to by the cartel and its allies.

Equally troubling for OPEC supporters is the argument from the analytical community that even if costs rise over the next few years, U.S., production will keep growing; this is in addition to the possibility of production increasing now that U.S. president Donald Trump has withdrawn from the Paris accord, they say.

According to the Energy Information Administration, U.S. exports of 1.3 million bpd last week were accompanied by domestic oil production increasing to 9.34 million bpd from 9.32 million the week earlier, despite oil sinking to the high $40s; also, American refineries processed a record 17.51 million bpd last week, topping a previous record of 17.29 million barrels in April.

John Kilduff, founding partner of Again Capital, noted, "U.S. producers are stepping up to fill the gap left by OPEC and other non-OPEC producers; it's going to a number of locations but increasingly Asia, where the real global battle for market share is on."

Figures supplied by Matt Smith, director of commodity research at ClipperData, show export loadings to Asia jumping from a mere 7 percent last year to 40 percent in 2017.

Andrew Lipow, president of Lipow Oil Associates, added, "I expect we're going to see new records set over the next six months as U.S. production continues to ramp up ... OPEC has become the swing producer of the world because other producers have figured out how to lower their costs and increase their efficiency and get more oil out of the ground profitably at $50.

"OPEC needs to just grit their teeth and wait for world oil demand to soak up the oversupply."

As far as Barclays is concerned, U.S. shale producers can be profitable even at prices lower than $50: in a note, the bank stated that exploration and production companies can keep drilling their most cost-effective resources for several more years and that at current levels, "many producers will continue to meet or exceed their 2017 production guidance."

Analysts acknowledged that even though costs are rising in Texas's Permean basin, more efficient drilling methods are offsetting that inflation; plus, Bank of America Merrill Lynch believes costs will rise just 10 to 15 percent, about half the rate experienced by others.

If anything will quash U.S. shale's rise it won't be inflation, says Goldman Sachs; rather, it will be lenders no longer offering drillers cheap credit, along the lines of 7 percent on the high yield market.

But it remains to be seen whether this will happen, especially in the wake of Trump once more demonstrating his support of home grown energy production by last week withdrawing from the Paris climate change agreement.

While widely condemned by green groups, the move has sparked worries among others that it could cause U.S. shale to expand at an even greater rate: Stewart Glickman, energy equity analyst at CFRA, said Trump seems to be removing any barriers  that would obstruct growth of domestic crude oil or natural gas, and that "Its kind of ironic because by doing that you're encouraging more volumes to come out of the ground."

Last week Wood Mackenzie Ltd. suggested another possible venue in which the U.S. could expand: deep-water drilling, which the organization forecasts will be viable for the Americans with prices as low as $50 by next year.