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Is US Outpacing OPEC in Crude Oil Export Race?

Will crude oil cross the $100 a barrel mark again? Even though this seems quite unattainable--after mid-2014, the commodity hasn’t even treaded close to this benchmark thanks to the supply glut--the crude pricing scenario is looking up.

Oil has been steadily recovering from its historic lows, currently trading above $50 a barrel. The recovery has been largely backed by OPEC’s compliance with its landmark production cut deal.

Is the agreement leading OPEC to lose crude export market share in the race with U.S. shale players?

Record-High Volume of Oil Export in US History

The United States has never exported more than 2 million barrels of crude oil per day. During the week through Oct 27, the nation exported 2.13 million barrels a day of light oil, way higher than 400,000 barrels shipped after the lifting of the four-decade long ban on oil exports at the end of 2015, per CNBC. 

The all-time high export volumes were primarily supported by record weekly U.S. production. As per the Energy Information Administration (EIA), American crude output for the week ended Oct 27 was 9.55 million barrels a day, close to 9.61 million barrels — the highest in the week through Jun 5, 2015.

The U.S. shale boom has been the primary reason for the record-high levels of export and production. The combination of hydraulic fracturing and horizontal drilling has made many oil projects economically viable, encouraging shale players to relentlessly pump out oil.

Strong European Crude Demand

According to Kpler, the lion’s share of export volumes was shipped to Europe. For the week ended Oct 27, the United States shipped 914,000 barrels of crude a day to the continent, significantly higher than the preceding week, reported Kpler. This clearly reflects the substantial demand for light oil in Europe.

Though Asia has significant demand for U.S. crude, shipments to the continent surprisingly declined 54% from mid-September through October, per Kpler. However, the proportion of U.S. crude export to China — the largest importer of oil in the world, per EIA — jumped to 20%, as of July 2017, from 3.7% in 2016, per a media report.

Also, on Oct 2, the United States exported a massive 1.6 million barrels of oil to India — the third largest crude importer in the world — for the first time, per CNBC.

Investors should know that the significant discount of West Texas Intermediate (WTI) relative to Brent has made U.S. light oil popular among overseas crude buyers. As long as Brent is more expensive than WTI, demand for U.S. oil will remain high.

OPEC Loses Market Share

On Nov 30, 2016, OPEC signed a landmark deal to curb oil output by 1.2 million barrels a day. Following in the footsteps of the cartel, non-OPEC players headed by Russia decided to lower oil output by 558,000 barrels per day las December. Collectively, they decided to cut crude production by 1.8 million barrels each day.

On May 25, the cut in oil production was extended until the first quarter of 2018. Now, speculations are rife that OPEC could extend the agreement through the end of 2018.

To comply with the accord, OPEC is lowering supplies to major crude buyers, which has helped the United Sates gain an edge over OPEC.    

US Shale Players to Gain

As per rig count data provided by Baker Hughes, a GE company BHGE, total U.S. drilling rigs increased dramatically from 664 – as of Jan 8, 2016 – to 909 as of Oct 2, 2017. This shows that more shale players have gathered in the U.S. lately, supporting record US production that has resulted in soaring export.

Growing U.S. crude export will definitely prove favorable for the shale players. Major shale-focused companies are EOG Resources, Inc. EOG, Whiting Petroleum Corporation WLL, Exxon Mobil Corporation XOM, Apache Corporation APA, and Pioneer Natural Resources Company PXD.

EOG Resources and Whiting Petroleum carry a Zacks Rank #2 (Buy), while Apache and Pioneer carry a Zacks Rank #3 (Hold). Exxon Mobil – the largest publicly trading oil company – sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
 
Apache Corporation (APA): Free Stock Analysis Report
 
EOG Resources, Inc. (EOG): Free Stock Analysis Report
 
Whiting Petroleum Corporation (WLL): Free Stock Analysis Report
 
Baker Hughes Incorporated (BHGE): Free Stock Analysis Report
 
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