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U.S. oil producers sent a record 7 million barrels of crude out into the world market last week, at a time when OPEC members have cut back on their own output by nearly the same amount.
Analysts say it makes sense that U.S. crude slipped into the market void created by OPEC. It may also be a glimpse into the future where the U.S. and its shale production becomes a more significant player in the world export market. The 1 million barrels a day is nearly double the week-earlier level.
"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," said Tom Kloza, head of global energy research at Oil Price Information Service. "That really is the concern in the global oil market. We tend to import the medium and heavy [grades of crude]. I'm sure most of the exports are light sweet oil."
Energy analysts were surprised by the amount of exports, which have been running about 500,000 barrels a day, and averaged 685,000 barrels a day over four weeks. But they were not ready to say this is now a new sustainable level for U.S. exports.
"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 said.
The Energy Information Administration's weekly inventory data also showed that U.S. oil stockpiles swelled to a record 518.2 million barrels last week, and gasoline inventories also hit a record 259.1 million barrels, gaining 2.8 million barrels.
"We're seeing cargos go out to Asia more and more," said John Kilduff of Again Capital.
OPEC and other producers held back about 890,000 barrels a day from the world market in January, under their agreement to curb output in order to support prices.
Kilduff said China may have been a bigger destination for U.S. barrels because of its purchases of U.S. shale operations, and the output cuts by other producers have possibly made an opening. He also pointed to a report on Reuters that quoted sources saying as much as 7 million barrels were lined up and heading to Asia, with 2 million chartered to China in December by PetroChina and Unipec.
"We've been waiting for this to happen," said Kilduff of the export jump. "We'll see how it goes. We're going to face competition." He said cargoes also go to Europe and Latin America, and Canada has been a longtime export destination.
"It's incredible that we were able to put 9.5 million barrels into storage last week, while exporting a million barrels a day," Kilduff said.
The U.S. even with exports continues to import oil a lot of crude. It imported 7.5 million barrels of oil last week, down from 8.8 million barrels the week earlier.
U.S. oil production has been rising, and held steady at just under 9 million barrels a day last week. The U.S. government expects shale production to increase by 80,000 barrels a day next month, and it forecasts overall oil production to reach 9.5 million barrels a day next year.
"Given that the U.S. will likely be the last region to rebalance storage, we have suggested that a significant/sustainable uptick in US crude exports is a surefire sign of the broader
market rebalancing as barrels plug supply gaps elsewhere, " RBC analysts wrote Thursday. They also said they expected a good chunk of the shipments were headed for Singapore, due to pricing arbitrage, and that may not signal a sustainable trend.
The cutback by OPEC, and the fact that prices have stabilized in the $50s per barrel, has given rise to a jump in U.S. shale production.
"[Customers are] looking at other types of crude to fill the gap left by a reduction in OPEC production, and at the same time you're seeing continuing demand in China, as world oil continues to increase," said Andrew Lipow, president of Lipow Oil Associates.
Demand forecasts have been rising and the International Energy Agency expects 1.4 million barrels of new demand for 2017. "That supports the price of crude and certainly helps the producers in the Permian Basin, Eagle Ford and elsewhere. Some of it for sure is making its way out to Asia," he said.
Lipow said the U.S. export data will have to be watched to see if it really is a trend of heightened exports. He said there was fog in the Houston shipping channel recently, and if that held back cargos, it could have resulted in an unusually large amount of shipments all in the same week.
But he expects the volume of exports to grow regardless.
"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," Lipow said.
Kloza said exports will also grow with completion of the controversial Dakota Access pipeline, expected to take crude from the Bakken in North Dakota, as well as the Keystone pipeline which would take oil from Canada to the Gulf Coast.
Helima Croft, global head of commodity strategy at RBC, said the U.S. barrels could run into trouble if too many are put on the world market at the same time sweet crude producers Libya or Nigeria ramp up. The OPEC producers mostly ship heavier crude, the type that can be processed on the U.S. Gulf Coast. East Coast refiners are typically where lighter sweet crudes are refined, and the source for that has been the U.S. and Africa.
"It's the type of barrel that chokes 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.