One consequence of shale producers taking hits from lower prices: More reliance on OPEC.
After years of decline, crude oil imports from OPEC members rebounded in the fourth quarter as a result of U.S. production stagnating, higher refinery input, and a tighter spread between U.S. crude prices and the international market.
In the fourth quarter, U.S. imports from OPEC totaled 2.77 million barrels per day (mbd), up by .22 mbd versus the same time a year ago, based on an analysis of revised and preliminary data from the Energy Information Administration (EIA). From 2008 to 2014, for the October-December time period, OPEC volumes to the U.S. were basically cut in half, falling by a massive 2.67 mbd.
It’s not clear if the Q4 numbers are a blip, or a sign that the U.S. is losing momentum in shifting away from OPEC oil.
Declining demand in the wake of the 2008 recession and the massive increase in domestic oil production sliced the need for crude from the cartel. But with prices having crashed by roughly 70 percent, U.S. production isn’t growing anymore. At the same time, refiners are boosting their crude runs to take advantage of strong margins. U.S. crude output is now lower than it was at the beginning of 2015, while crude runs were .225 mbd higher during the fourth quarter and are expected to keep rising. Moreover, the tighter differential between Brent and WTI means imports are more economical.
Despite the annual increase in the fourth quarter, for all of 2015, the amount of crude imported from OPEC countries was down compared to 2014. In 2015, OPEC members sent 2.7 mbd to the U.S., falling from 3 mbd the prior year and 5.4 mbd in 2008.
It’s not clear if the Q4 numbers are a blip, or a sign that the U.S. is losing momentum in shifting away from OPEC oil. But with shale production forecast to decline in 2016, and domestic demand increasing from both consumers and refiners, higher volumes from OPEC will likely reach the U.S. All that said, the energy security gains or recent years are not easily reversed: Even though OPEC imports made up a hefty 36 percent of total volumes shipped to the U.S. in Q4, that is down from the massive 55 percent seen in 2008.
Saudis hold market share
Saudi Arabia remains the second largest supplier of imported oil to the United States, making up roughly 15 percent of total imports, on par with previous years.
The biggest OPEC supplier to the U.S. in Q4 was Saudi Arabia, from which we imported 1.09 mbd. That is down a substantially from the 2008 levels of 1.5 mbd, but the Kingdom remains the second largest supplier of imported oil to the United States, making up roughly 15 percent of total imports, on par with previous years. The Saudis have been able to hold on to U.S. market share because it is part of Motiva Enterprises, a joint venture with Shell that operates three refineries on the Gulf Coast. Moreover, Saudi Arabia has made its crude attractive to refiners through discounts, and U.S. plants are optimized to run the heavier grades the Kingdom produces. The Saudis are pursuing a strategy to undermine U.S. shale and compete effectively in Europe and Asia against Iran, Iraq and Russia. As in the United States, they have succeeded maintaining their global foothold by pumping at high levels and discounting their crude, instead of cutting back to balance fundamentals.
Venezuela’s volumes to the U.S. were just under .8 mbd for the fourth quarter, or 10 percent of total imports. Iraq’s exports to the U.S., meanwhile, have skyrocketed, rising by 12 percent annually to .37 mbd, as the country has upped its production and exports at a rapid pace. Like most OPEC members, it is seeking market share in a number of regions to diversify its customer base. The biggest loser continues to be Nigeria, which sent only 67,000 b/d in the fourth quarter. While that is down significantly from the peaks of close to 1 mbd about five years ago, it is still better than some periods throughout the past two years when the Nigerians were completely backed out of the U.S. market. Because the quality of Nigerian crude is similar to what is produced in the Bakken in North Dakota and other tight oil plays, the West African OPEC country has been hit the hardest by the shale boom. That trend could reverse course somewhat as shale output tails off.
U.S. market to tighten without shale growing
Reliance on OPEC should incrementally rise this year, and possibly next.
U.S. shale output averaged around 9.3 mbd in the fourth quarter, down from the monthly peak of 9.7 mbd in April and only slightly above the same time in 2014. The EIA forecasts it to average 8.73 mbd throughout 2016 and continue to fall next year, dropping to 8.46 mbd. Meanwhile, refiners, based on forecasts, are poised to up their throughputs to meet domestic and international demand, further increasing their appetite for crude—which in turn will pull in more imports.
This state of affairs, along with U.S. prices generally in parity with the international market, means reliance on OPEC should incrementally rise this year, and possibly next.