US oil exports will keep booming after hitting record 2 million barrels a day, analysts say

Key Points
  • U.S. crude oil exports hits a record high just below 2 million barrels a day last week.
  • U.S. crude is trading at a discount to Brent, encouraging foreign buyers to purchase American supplies.
  • Exports should remain elevated for several months until the prices converge.
Oil prices rise 2% as talk of extended output cuts offsets booming US crude exports
Oil prices rise 2% as talk of extended output cuts offsets booming US crude exports

The U.S. oil export boom will keep chugging along in the coming months, analysts said, one day after the government reported record shipments of American crude.

Oil exports rose to an all-time high 1.98 million barrels a day, surpassing the previous record of nearly 1.5 million barrels that was hit during the previous week. At that level, the United States is shipping out more oil than what OPEC countries like Venezuela and Nigeria produce.

Fueling the boom is the widening gap in the price of a barrel of U.S. West Texas Intermediate crude and , the international benchmark. That gap is now around $6.25 a barrel.

WTI traded Thursday at $50.76 a barrel, while Brent was at $57. When WTI trades at a discount to Brent and other foreign benchmarks, it encourages traders to buy U.S. supplies. But the so-called spread needs to be wide enough to offset shipping costs.

"It seems as if we're in a new paradigm now at least for the foreseeable next few months, promoted by the wide WTI-Brent spread," said Matt Smith, director of commodity research at tanker-tracking firm ClipperData.

While last week's export levels just under 2 million barrels a day are probably unsustainable, Smith said he believes exports will remain elevated for at least another month or two. That's in part because American producers have committed supplies to overseas buyers.

But there is also typically a lag between the widening of the Brent-WTI spread and the rise in exports, Smith added. That means today's wide spreads are feeding tomorrow's exports.

The Brent-WTI spread blew out in September after Hurricane Harvey knocked out one-quarter of U.S. refining capacity, sinking demand for crude oil and causing stockpiles to build up. That weighed on WTI prices, and Brent's rally soon outpaced U.S. crude's run-up.

"We were seeing exports getting close to a million barrels per day even when the spread was nearly half of what it is now," Smith said. "It seems as long as our spread remains above three or four dollars, we're going to see a million barrels-per-day-plus exports."

Andy Lipow, president of Lipow Oil Associates, also said U.S. producers can't maintain last week's pace, but exports could strike another high this month. Lipow correctly predicted in June that the United States would continue to set new export records in the second half of 2017.

"We're going to continue to export significant volumes of oil over the next couple of months, as the economics are there to ship it to markets in Asia and Europe and elsewhere," he told CNBC.

U.S. shale oil output is projected to march higher in the fourth quarter, while refiners will shut down for seasonal maintenance, leaving more crude available to foreign buyers, Lipow noted.

What could eventually clip WTI's wings is the export boom itself, the analysts said. Rising exports will help whittle away at brimming U.S. crude prices, helping to reduce a global oversupply and push up prices. As the WTI-Brent spread narrows, U.S. crude will be less attractive to overseas buyers.

Oil prices sank on Wednesday after the U.S. Energy Information Administration reported the import figures, but they rebounded 1.6 percent on Thursday as comments from Saudi and Russian officials fed hopes that the top oil producers will orchestrate an extension to output cuts among about two dozen exporters.

The production cuts have opened an opportunity for U.S. drillers to fill the gap left by OPEC and its allies. The exporters are keeping 1.8 million barrels a day off the market through March.

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