OPEC-initiated production cuts have paved the way for a jump in crude exports from the U.S., as the West Texas Intermediate-linked crude became more economically viable than the Dubai, United Arab Emirates-linked output of traditional oil producers.
Speaking at the Philippines Energy Forum in Manila on March 20, S&P Global Platts' managing editor for crude oil, Ada Taib, said the U.S. has been a major beneficiary of the OPEC production curtailment.
Toward the end of 2016, OPEC and non-OPEC allies agreed to freeze production at about 32.5 million barrels per day for six months starting in January 2017. The agreement has since been extended twice and will remain in force until the end of 2018.
Incentivized by the lifting of the U.S. crude export ban in late 2015 and the subsequent OPEC production restrictions, the U.S. rig count rose to 20-month highs in early 2017 and annual crude exports reached "unprecedented levels" of about 1 MMbbl/d, roughly doubling year on year.
U.S. crude has become more economically viable for Asian markets than products from the Middle East, as the Dubai benchmark that previously traded at a discount to the West Texas Intermediate grew a premium in 2017 after the oil production cuts were put in place, Taib said.
Of the roughly 400 MMbbl exported by the U.S. in 2017, about 140 MMbbl flowed into Asia, Taib said. China received the bulk of the exports at 81 MMbbl, up from less than 8 MMbbl in 2016, followed by South Korea that claimed 21 MMbbl, from less than 4 MMbbl in 2016. New importing countries Malaysia, Taiwan and Hong Kong joined the ranks of U.S. crude importers.
US crude helps turn global crude slate lighter
As the market share of U.S. crude increased and the production of medium and heavy crude was curtailed by the OPEC agreement, the global crude slate has become lighter, S&P Global Platts Content Director Sebastian Lewis said in a separate session at the Philippines Energy Forum.
While U.S. shale production that includes light crude and natural gas liquids has enjoyed steady growth over the recent years, medium and heavy crude production declined for the first time in 2017 following the OPEC-initiated output cuts.
Discussing the yield of lighter products, Lewis said residues have become more scarce and naphtha more abundant in 2015 through 2020, compared to 2010 to 2015, helped by increased conversion capacity.
U.S. shale output is forecast to continue growing to 14 MMbbl/d in 2025 led by the Permian region, driving soaring exports. The repeal of the U.S. crude export ban combined with shale production growth to encourage the flow of U.S. crude into major destinations in Asia and Europe, a trend that is expected to continue into the 2020s, Lewis said.
Demand growth in Asia is expected to be increasingly met by sweet exports from the Atlantic Basin, which include the Americas, Africa and Europe. "The Atlantic Basin will become net long crude and increasingly supply the Asian short," Lewis said.
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