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US turns into 'oil nation' with record exports, 'eating' OPEC market share

The U.S. exported a record amount of crude oil, topping a million barrels a day for a second week and filling the gap in world markets created by OPEC cutbacks.

Shale and other U.S. producers sent 1.2 million barrels of crude oil onto world markets last week, up nearly 200,000 barrels a day from the week earlier and about 350,000 barrels above the four-week average, according to Energy Information Administration data. Until recently, the U.S. was exporting about 500,000 barrels a day.

"OPEC's got a competitor. No doubt about it," said Kyle Cooper, a consultant with Ion Energy Group. "They certainly have to be concerned with U.S. oil producers eating into their market share."

U.S. producers have also ramped up production to 9 million barrels a day last week, a level last seen in April 2016. The new production is increasing even as the U.S stockpiles continue to grow. According to EIA, oil supplies grew for a seventh week, adding a smaller than expected 564,000 barrels.

"OPEC is definitely looking over its shoulder at these rising numbers of exports, and it's undermining their efforts on a daily basis," said John Kilduff of Again Capital. "Some of it's going to Asia. China is one of the more unusual buyers in there. The shale guys are filling the gap of the very cuts that were put in place by the market."

The Organization of the Petroleum Exporting Countries and non-OPEC producers, like Russia, agreed to cut about 1.8 million barrels a day from the world market in an effort to stabilize oil prices.

This is in contrast to a previous failed strategy to let the market set prices, which ended with oil collapsing into the $20s per barrel as producers flooded the world market. That earlier strategy was a direct response to the rise of U.S. shale production in the last decade.

Oil has been holding above $50 per barrel since OPEC reached the output deal in December. The market has been giving the producers high marks for compliance with the deal, with a recent Bloomberg report quoting OPEC sources saying they have 90 percent compliance and non-OPEC 70 percent. OPEC removed about 890,000 barrels a day from the world market in January.

Kilduff said he's skeptical of the compliance. "It looks like compliance is going to be well below 80 percent. Exports are on the upswing. We're seeing the tanker data," he said.

Cooper said some of OPEC's compliance was easy to achieve due to planned maintenance in January.

"If you're bullish, this should make you worry," Cooper said of the U.S. exports. "I think by late March, April, the market should be concerned about whether [OPEC] compliance is really compliance."

Reuters reported this week that traders from North America, Britain and Brazil have tripled their shipments to Asia, taking advantage of the OPEC cuts. According to Thomson Reuters research, about 30 super tankers this month made their way to Asia from the Americas, the North Sea and Mediterranean.

"The pressure on prices is going to stay in place and ultimately break us out of this range to the downside," said Kilduff. "I'm not sure the Saudis don't throw it down … but history says the shale guys will cut back."

U.S. shale has been more resilient than expecting, springing back in a big way after oil prices moved above $50 per barrel. West Texas Intermediate was trading in the $54 per barrel range Thursday. As U.S. exports increased last week, U.S. imports have also decreased, down to 7.3 million barrels a day, about 1 million barrels a day below the four-week average.

"We are an oil nation now. We are a petroleum state," said Kilduff. "You have to see how far down our shale producers can drive down their costs. It's hard to see them competitive with the likes of Saudi Arabia, but they are competitive with some other countries."

The U.S. exports alone totaled more than the production of a number of OPEC countries, like Algeria, Libya, Gabon, Qatar and Ecuador, according to Andrew Lipow, president of Lipow Oil Associates.

"Never underestimate U.S. engineering with an economic incentive. What they've done across the U.S. is phenomenal," Cooper said. U.S. drillers have harnessed new technologies and continue to lower costs and increase efficiency as they retrieve oil from areas once thought to be unproductive. "I really think it's one of the most significant technological advances we've seen."

CORRECTION: This story has been updated to correct the name of the Organization of the Petroleum Exporting Countries.