US Crude Oil 2018
2017 was a great year for the US oil industry, as exports and production reached all-time highs. And, the momentum is likely to continue for US Crude Oil.
For smart stock trading, the first few days of 2018 will inevitably be spent planning the course of action for the year while drawing on lessons from 2017. And, analysts’ opinions play a significant part here.
Crude Oil Production in the US at All-time High
Oilprice.com analysts give their take on the oil industry. If there’s one thing that stands prominent from this industry in 2017, it’s how the lifting of the ban on US crude oil exports back in 2015 really began to show its effects. Crude oil productionin the US peaked at 1 mb/d (million barrels per day) in the first half of 2017 while exports were in the region of 750,000 bpd in the period from January to June.
Exports Hit their Peak Thanks to Discounted WTI Pricing
Q3 was when exports hit the big league. An unlikely contributor to this was Hurricane Harvey. The storm destroyed much of Texas and caused damage to many of the refineries there. The oil that was produced in Texas needed to be sent somewhere and so exports were the way out. There was a glaring contrast between the surplus availability of crude oil and the shortage in refining capacity. This resulted in awidening price differential between the discounted WTI pricing and Brent pricing, growing up to a difference of $7 per barrel. The discounted rates made US oil exports pretty attractive. Exports to China particularly soared significantly in 2017.
Exports hit the peak in October’s last week, at 2.133 mb/d. Since then, exports have fallen back slightly and that wasn’t much of a surprise since the US was never expected to meet this higher number of shipments. As more oil gets exported, there would be a narrowing of the WTI and Brent discounts. That would erode the competitiveness of US crude.
But the US has indeed averaged 1.5 mb/d in Q4. Historically that is a very high figure. Going by that figure, you have the US exporting more oil than many of the OPEC members – more than 6 out of the 14 members, to be precise. The United States has become a major player in the oil market globally.
Export Momentum Tipped to Continue
While it seems that there could be an easing of US oil exports this year, there are forces that could contribute to maintaining this level. The major factor that could keep exports significantly high is the exceptionally large WTI discount. The front-month prices still trade nearly $7 per barrel below the Brent. That makes US crude cheaper and will therefore ensure exports are high. There is also a surge in US shale output, which complements the discount.
According to the EIA’s predictions, the US will produce 9.9 mb/d on an average in 2018. That would be an all-time high. OPEC predicts US shale to grow by around 1 mb/d. The IEA, though, predicts 870,000 bpd, which is lesser but robust nonetheless.
Discount Contributes to Maintaining Export Momentum
As long as the discount continues, it is likelier to hang on to some of its customers even if the discount starts narrowing later. Oilprice.com quotes Argus Media as reporting that Indian, Polish and South Korean refineries are purchasing crude from the United States rather than from traditional destinations such as the Middle East. These countries have already reserved initial cargoes and could be making more purchases subsequently.
More Factors that Could Aid Exports
The possibility of more crude export terminals coming online this year and the next year is another factor that could contribute to exports continuing to rise. Oilprice.com also points to the infrastructural improvements being made to the Louisiana Offshore Oil Port (LOOP) for handling VLCCs (very large crude carriers) as another contributory factor. The modifications, which are set to be completed in the early part of this year, will expand the capacity of the port thereby reducing the cost involved in exporting.
As pointed out by Oilprice.com, there are plenty of factors that could ensure the momentum gained in 2017 will continue into 2018. That should give you some indication on what to invest in. Trade oil ETF and oil stocks both long and short, commission free with TradeZero.