Surging crude output opens door for US as key products exporter
London (Platts)--20Feb2013/533 am EST/1033 GMT
The technological revolution that has seen US crude production climb to
20-year highs has ensured the NYMEX crude contract's position as the global
oil benchmark and opened the door for the US to become a key exporter of
refined products, according to a senior official with NYMEX parent CME Group.
"Realistically, if you think about the global oil scene, where are
things happening? They're happening in the States, they're happening in the
increased production that the US is getting out of the ground with all the
fracking technology and things of that nature," CME Group Global Energy
Products and Services managing director Gary Morsches said in a Tuesday
According to the most recent Energy Information Administration weekly
inventory report, the US is currently producing in excess of 7 million b/d,
with the US Department of Energy agency also forecasting production to
average 7.25 million b/d this year and to climb above Saudi Arabian output by
Article continues below...
Sign up for Oilgram News
Oilgram News brings fast-breaking global petroleum and gas news to your desktop every day. Our extensive global network of correspondents report on supply and demand trends, corporate news, government actions, exploration, technology, and much more.
"The key is the production is getting access to markets, that's the big
infrastructure, the rail and the pipelines," Morsches said, adding logistical
constraints that had held crude stocks at Cushing, Oklahoma, the delivery
point for the NYMEX contract, were starting to ease.
"You have seen the Seaway pipeline up to 400,000 b/d, the second leg of
Keystone is going to be up by the end of this year and that's going to add
close to another 700,000-800,000 b/d, we've had massive rail infrastructure
and investment that is getting crude down to the Gulf Coast, but also over to
the East Coast as well," Morsches said.
This, he added, would open up new markets for the crude, reducing US
imports -- currently "less than half of what they were a couple of years ago"
and expected fall to zero over the course of this year, he said -- that could
now be sent elsewhere.
"I think that bodes well for WTI, that bodes well for the state of the
US crude production/consumption fundamentals and I think that increases the
relevance of WTI," Morsches said of the NYMEX crude contract.
"What this change of flows is doing is backing out all that light sweet
crude that is coming in here... and with the depth of liquidity, the
transparency around WTI as a benchmark contract is increasing its relevance
both in the US and worldwide."
US FUTURE AS OIL PRODUCT SUPPLIER
Another feature of this increased production, Morsches added, was the
prospect of the US, which has legislative restrictions on crude exports,
becoming a key player in the global refined products market.
"I think what you are going to see and what you are seeing right now is
increased refinery runs and you'll see the US export more refined products
and maintain that route, not exporting crude, but exporting the finished
goods, which is a good thing," Morsches said.
"You have seen the demise of the European refiners, the lack of
complexity that have and the economics of these older refiners aren't keeping
up, so consequently it is the US and the new refineries in the Middle East
that are going to make up the bulk of the product balances."
In this regard Morsches noted US refiners had been changing their
investment strategies toward capitalizing on the increased light sweet crudes
available, altering their crude buying and boosting their crude runs.
In the meantime, Morsches said, the change in worldwide crude flows
was also expected to ease the supply problems from out of the North Sea and
help narrow the ICE Brent premium to WTI, which has spent the bulk of the last
12 months at more than $20/b, back to more normal levels approaching parity.
"We have had decreases in production, we've seen all the problems
plaguing [North Sea output] with overhauls and things of that nature on
production, we just have fewer barrels available in Brent and with the tax
advantages they're taking and exporting a lot of this over to [South] Korea
into markets that they never exported into before, so consequently what
you've got now is really a 'North Sea syndrome,'" Morsches said.
"You've got supply fundamental issues around the North Sea that have
taken that crude and jacked its price way high and that's a structural issue
that's not going to be resolved with building a pipeline or short-term
infrastructure investment, that's a real fundamental problem that's plaguing
the Brent crude contract, the lack of product."
Instead, Morsches said, it would be the knock-on effect of the rising US
production that would drag the premium back down.
"It is inevitable, it's going to take patience... the fundamentals will
work themselves out, because the crude flows change and continue to change
over time," Morsches said.
"The fact that the US is backing out all those light sweet imports
altogether, you'll have a domino effect... around the globe and those
Nigerian crudes [currently being exported to the US] are going to displace
some Brent cargoes and things of that nature and kind of rejig or rebalance
--Geoff King, firstname.lastname@example.org
--Edited by Lisa Miller, email@example.com