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US oil boom takes punch out of Putin on world crude prices

US oil keeps lid on crude

The next move for world oil prices is likely lower, as growing U.S. oil supplies outweigh some of the impact of the geopolitical tensions surrounding Ukraine.

The U.S. oil boom is having a bigger impact on world oil prices, and now the release of more crude via the southern leg of the newly opened Keystone pipeline running from Cushing, Okla., to Port Arthur, Texas, is creating a gusher of new supply in the Gulf Coast.

"I'm pretty bearish crude prices because I see there's a significant amount of supply out there, and I suspect U.S. supply is going to continue to grow through the course of the year," said Andrew Lipow, president of Lipow Oil Associates. "I suspect by the end of the year, we'll be producing close to 9 million barrels a day."

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The U.S. is now producing the most oil since 1988, about 8.2 million barrels a day—up by about 3 million barrels from January 2011. "Several states are setting records. Texas is about to surpass Kuwait as an oil producer," Lipow said. Texas production was just slightly below Kuwait's 2.9 million barrels a day in January.

"We're in the driver seat. We're going to continue to be in the driver's seat. It's us and Canada," said Dennis Gartman, publisher of the Gartman Letter. Analysts say the world is fairly well supplied with oil, and geopolitics is a relatively small factor behind current prices, even with Russian troops standing on the Ukraine border.

U.S. production has also been helping offset some of the price impact of the loss of more than 1 million barrels a day of Libyan oil, analysts said.

The controversial northern leg of the Keystone pipeline is still awaiting presidential approval. But the southern section has been operating since late January. That pipeline and the Seaway pipeline to Houston have been rapidly draining the Cushing storage facility and delivering oil to refineries. Cushing is the physical storage hub for West Texas Intermediate futures.

"It's causing Gulf Coast inventories to rise markedly," said John Kilduff of Again Capital. "If the Gulf Coast supply situation could break the back of any remaining tightness in the international market. I think it (WTI) could test the low 70s. It could be one of those market disruption events if that occurs."

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On Tuesday, West Texas Intermediate was trading just above $100 per barrel, while Brent, the international benchmark, was just above $107 per barrel.

"I look at what crude oil on the Gulf Coast is trading at relative to crude oil at Cushing," said Lipow. "It's only 50 cents to a dollar more than Cushing, which does not pay for the pipeline tariff and that's an indication of glut appearing on the Gulf Coast."

The U.S. still imports oil—7.6 million barrels a day last week, but the source of those imports are changing. Canada remains the biggest supplier and Saudi Arabia is second, but African crude is losing ground. The U.S. imported just 34,000 barrels a day of Nigerian crude in January, down from 300,000 a year earlier. In 2008, the U.S. imported 9.8 million barrels a day.

"I think you're seeing a reconnection of the North American market with the Atlantic basin Brent," said Eric Lee, analyst at Citigroup.

Lipow said U.S. refineries are using more oil and are exporting more refined product to the world market. Crude exports are largely restricted, and there have been increased calls to export to Europe because of the situation with Russia, a major source of European oil and gas.

Lipow said U.S. oil has displaced Gulf Coast imports of light sweet crude from Nigeria, Libya and Algeria. "As the buildout of crude by rail to the East Coast gets completed, we will displace all imports of light sweet crude into that region by the third quarter of this year," he said.

—By CNBC's Patti Domm.