The US energy industry has taken seriously its role as the savior of Europe. After increasing liquefied natural gas exports to a record due to Europe’s thirst for energy, US oil exports are also increasing, but the trend may not be sustainable. Reuters’ John Kemp wrote in a recent column that the United States became a net exporter of crude oil and fuels last month, with a difference between imports and exports of 3 million barrels a day. He also noted, however, that much of this oil comes from stocks that have now fallen to their lowest level since 2008.
Since July 2020, Kemp noted, US oil inventories have fallen by 421 million barrels. Strategic oil stocks are also low, and fuel stocks are below average for this time of year, especially in distillates, which are 30 million barrels below average.
From the immediate perspective, the fact that the United States is intervening to fill the gap left by the sanctioned Russian oil is good news for both US exporters and European importers. In the long run, however, the plan could hit a wall of inventory.
If US exporters sink into their reserves to send enough oil to Europe, it means that US oil production is not growing fast enough – a fact that the Biden administration has been complaining about for some time.
Higher exports, which really come from stocks, could become another issue the administration finds problematic, especially after a ban on oil exports proposed by members of Congress to keep the price of fuel prices under control. retail before Russia’s invasion of Ukraine. Pump prices are now even higher than in December, when lawmakers proposed a ban.
It is clear that the current ban would run counter to the administration’s repeatedly stated and demonstrated support for Europe’s energy needs. Yet the link between rising US oil exports and rising domestic fuel prices is hard to ignore. The key, of course, is to ensure that production catches up with demand, which will be even more difficult.
The latest monthly production data from the Energy Information Administration (EIA) revealed that oil production in the United States fell in February before Russia began its war against Ukraine. Since then, production may have increased to some extent, but not everywhere.
The Wall Street Journal reported last week that oil drilling in Perm, which is the biggest contributor to production growth across the country, is battling a constant shortage of equipment, workers and, perhaps surprisingly, money.
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Citing energy executives and analysts, WSJ’s Colin Eaton said that while Perm is expected to be the only place in the United States where oil production could grow significantly, this growth may not materialize as expected due to ongoing problems in the chain. for deliveries.
One of the reasons, according to Eaton, is the damage the oil industry industry suffered during the pandemic, prompting companies to shut down much equipment, which is now apparently slowly returning online.
Another reason, according to the WSJ, is the continuing skepticism among investors about the oil industry, despite the price rally. This is essentially cutting the wings of oil service providers who do not have enough money to invest in more equipment in response to greater demand for it.
The situation could be problematic for both the United States and Europe. The chances of big public oil companies suddenly changing their minds and doing what politicians want them to do – stop buying back shares, stop dividends and increase production – are slim.
The chances of smaller independent producers suddenly finding the money to drill as much as necessary to restore balance to international oil markets may be a little higher, but still too small: investors are taking time to change course, and then takes time to produce oil. start growing.
According to the EIA, oil production in the United States will increase by about 8% this year compared to last year to 12.6 million barrels per day. This will be up from approximately 11.9 million bpd from the week of April 22, so the increase will be less than 1 million bpd. Europe needs more than that, and there are few manufacturers that are as friendly as the United States. However, the United States will also need more crude oil, if only to replenish its reserves at some point.
The situation is likely to remain complicated for some time. It is no coincidence that Finance Minister Janet Yellen warned the European Union last month to be careful when it comes to the oil embargo against Russia, because it will raise prices for everyone. Despite the warning, the EU continues to implement its embargo plan, which could be announced this week.
By Irina Slav for Oilprice.com
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