For the first time in 40 years, the United States leads the world in crude oil production. In a report issued yesterday by Bank of America Corp., “U.S. production of crude oil, along with liquids separated from natural gas, surpassed all other countries this year with daily output exceeding 11 million barrels in the first quarter.”
“The U.S. increase in supply is a very meaningful chunk of oil,” Francisco Blanch, the bank’s head of commodities research, said by phone from New York. “The shale boom is playing a key role in the U.S. recovery. If the U.S. didn’t have this energy supply, prices at the pump would be completely unaffordable.”
Oil extraction is soaring at shale formations in Texas and North Dakota as companies split rocks using high-pressure liquid, a process known as hydraulic fracturing, or fracking. The surge in supply combined with restrictions on exporting crude is curbing the price of West Texas Intermediate, America’s oil benchmark. The U.S., the world’s largest oil consumer, still imported an average of 7.5 million barrels a day of crude in April, according to the Department of Energy’s statistical arm.
U.S. oil output will surge to 13.1 million barrels a day in 2019 and plateau thereafter, according to the IEA, a Paris-based adviser to 29 nations. The country will lose its top-producer ranking at the start of the 2030s, the agency said in its World Energy Outlook in November.
“It’s very likely the U.S. stays as No. 1 producer for the rest of the year” as output is set to increase in the second half, Blanch said. Production growth outside the U.S. has been lower than the bank anticipated, keeping global oil prices high, he said.
Partly as a result of the shale boom, WTI futures on the New York Mercantile Exchange remain at a discount of about $7 a barrel to their European counterpart, the Brent contract on ICE Futures Europe’s London-based exchange. WTI was at $103.74 a barrel as of 4:13 p.m. London time.
That crude price would be a lot higher if not for the boom in the US. The situation in Iraq and Syria would ordinarily have sent prices through the roof. But the increase in supply thanks to the US has moderated prices somewhat.
They would drop even more if we allowed crude oil exports:
A U.S. Commerce Department decision to allow the overseas shipment of processed ultra-light oil called condensate has fanned speculation the nation may ease its four-decade ban on most crude exports. Pioneer Natural Resources Co. and Enterprise Products Partners LP will be allowed to export condensate, provided it is first subject to preliminary distillation, the companies said June 25.
The decision was “a positive first step” to dispersing the build-up of crude supply in North America, Bank of America said in a report on June 27. The U.S. could potentially have daily exports of 1 million barrels of crude, including 300,000 of condensate, by the end of the year, according to a June 25 report from Citigroup Inc.
North America is poised to become the “New Middle East” in oil production, with a projected doubling of output from Mexico, the US, and Canada to exceed 20 million bbl a day by 2020. Some analysts believe that to be an underestimate. Canada’s tar sands revolution, the US shale boom, and the deregulation of the Mexican oil industry that will allow foreign companies access to some of the biggest untapped oil fields left in the world, promises to make North America a hub of energy production for the coming decades.