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Can the U.S. Sustain a Rising Tide of Oil Exports?

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Lately, most of the media sources have been buzzing with the news of the United States becoming a net exporter of 'crude oil' during the week ended Nov 30, 2018. Well, the nation is surely sprinting toward the path of energy independence with the shale boom, as well as Trump's efforts to revitalize the oil and gas sector. However, the above news reported by many publications is not exactly true.

While the nation's crude oil exports of 3.2 million barrels per day (MMbpd) rallied about 139% from the year-ago figure, the country is still the net importer of oil to the tune of 4 MMbpd. Nonetheless, the fact that the country became the net exporter of 'oiland other petroleum products' combined for the first time in almost 75years is indeed remarkable.

The Math Behind the Net Exporter Tag

Per the latest Energy Information Administration (EIA) report for the week ended Nov 30, 2018, U.S. crude oil production came in at 11.7 MMbpd, representing nearly 20% increase from the year-ago figure. Then there is another line item, namely Other Supply (which represents natural gas liquids, renewable fuels, fuel ethanol, et al), which totaled 6.9 MMbpd. Hence, the domestic production of oil and other fuels totaled 18.6 MMbpd.

Notably, product supplied (which represents the approximate consumption of petroleum products) totaled 20.5 MMbpd. Importantly, the figure is around 2 MMbpd higher than the total production. However, one must not reach a conclusion right away because the figures do not account for exports.

Now,delving deeper, we note that during the said week, the nation imported around 7.2 MMbpd of oil while exported about 3.2 MMbpd. Interestingly, the United States imports and exports oil at the same time because there are different grades of crude, and it has to be carefully assessed which is best suited for the domestic refineries.

As a result, the country imports crude thatcomplements better with its refineries. However, that aside, the point to be noted here is the fact that the United States still remains the net importer of crude oil to the tune of 4 MMbpd.

Nonetheless, when it comes to Other Products,including the NGLs, gasoline, ethanol, etc., the country exported a total of 5.8 MMbpd compared with imports of just around 1.6 MMbpd. As such, the country's net export of other refined and petroleum fuels were 4.2 MMbpd.

Hence, taking into account the net oil import of 4 MMbpd and net finished products exports of 4.2 MMbpd, the United Nations did become a net exporter of 'crude oil and other fuels' to the tune of 0.2 MMbpd.

Shale Revolution, End of 40-Year Ban Boost Exports

While the country's shift from being the net importer to net exporter may be short lived, it is does highlight the fact that the United States is heading toward energy independence. Despite the steep fall in oil prices in the past month, the U.S. oil production continued to surge, coming in at 11.7 MMbpd, which is more than the oil pumped by Russia and Saudi Arabia in November.

Technological advancements and shale revolution, leading to higher output from prolific plays like Permian, Bakken, Marcellus etc., have buoyed up the production numbers. Notwithstanding volatile crude prices and pipeline concerns, production from Permian continues to ramp up to nearly 3.7 MMbpd in November 2018 from around 2.8 MMbpd in January 2018.

In fact, the rapid rise in production from the lucrative basin has fueled strongearnings and cash flow growth for pure play operators like Diamondback Energy, Inc. FANG , Concho Resources Inc. CXO , Parsley Energy PE , Callon Petroleum Co. CPE among others. Notably, all these companies carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Apart from fracking boom, the lifting of the 40-year ban on oil exports in 2016 also helped lift production levels, which in turn led to the spike in the U.S. oil exports. The removal of the embargo has unleashed a shale revolution, eroding OPEC's dominance by seizing the market share of many of its member countries.

Notably, so far this year, Canada and China have accounted for almost 35% of the total U.S. oil export. With signs of the trade war between the United States and China abating, the exports are not likely to be considerably impacted.

What Lies Ahead For 2019?

It seems that Trump's pro-energy reforms and shale revolution are likely to enable the country reach its production target of 14 MMbpd in the coming years. The country is on its way of becoming a major player in the exports market and has been making efforts to redesign its export infrastructure in order to expand capacity.

OPEC's recent decision to curb output by a total of 1.2 MMbpd in the first half of 2019 has risked the loss of more market share to the United States by giving the American producers further incentive to increase their production.

Moreover, according to recent reports, the nation's largest oil play, Permian, has more-then-expected crude reserves to offer, which will help to contribute even more in the nation's oil boom. Further, with many new pipelines coming online in the near future, the prospects of the U.S. energy sector is likely to shine brighter in the coming years.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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