North America set to play key role in global oil markets

• DOI: http://doi.org/10.1111/oet.12571
• Published date: 01 May 2018
• Date: 01 May 2018

SURVEY

North America set to play key role in global oil markets

A survey of the oil markets of the US and

Canada, their interrelationship and their con-

nexion with the international oil market by Oil

and Energy Trends’Consulting Editor, Dr

Paul McDonald

1|GROWING ROLE

In recent years North America has played an important and

growing role in world oil markets. Following decades of

decline, oil production in the United States is on the rise:

and the same is true of US exports. Canada, too, is playing

an increasing part in global markets as a result of the way in

which it is connected with the US market by pipeline and

other means. Canada’s production is also rising and much of

the increase is planned to be exported.

Until recently, however, US oil was not important in

world markets owing to tight restrictions on the export of

crude oil. Two events changed everything and brought about

the new and growing role of the United States on the global

oil scene. The first of these was the sharp rise in US produc-

tion that came about from 2009, following the growth in oil

prices that began in that year.

Much of the new production was of oil from shale and

other tight formations. There were also more natural gas liq-

uids available from the steady rise in US gas production,

which again involved deposits of shale along with other tight

gas formations. Between 2008 and 2017, US production of

crude and natural gas liquids (NGL) went up by 6.3 mn bpd,

or 93%, from 6.8 mn bpd to 13.1 mn bpd.

Much of the new production of crude oil was similar in

quality to that being produced in Texas and Louisiana, and a

significant proportion of it was from fields in Texas. The

result was a glut of oil in the US Gulf Coast region, which

was made worse by tight restrictions on the export of crude

by the United States. The inevitable result was a fall in US

crude prices from $100/bbl in 2008 to just over $43/bbl in

2016.

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2|OPEC CONCERNS

These export restrictions were largely removed from 2016

onwards and US crude oil became traded increasingly in

international markets. This caused increasing concern to

OPEC, particularly its Persian Gulf and African members,

which were especially concerned with rising US exports to

Asia, which many of them regarded as threatening their mar-

ket share in the world’s main growth region for oil demand.

These fears became more pronounced after the agreement by

OPEC and a number of other oil producers in November

2016 to reduce their production in pursuit if higher oil

prices.

Since then, the situation as far as OPEC and its allies are

concerned has deteriorated as US exports continue to

increase, with Asia the main area of concern.

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OPEC’s Per-

sian Gulf members are the main exporters to Asia, but their

dominance is a long-standing concern amongst oil-importing

countries there. In particular, their habit of charging Asian

buyers more than those in the Atlantic Basin is the cause of

some resentment, and a desire to reduce or even end the pre-

mium paid by Asian importers is undoubtedly behind moves

by several buyers in Asia to begin importing from the United

States. OPEC countries’main preoccupation is with US

exports of crude oil, but they also face competition from the

recently deregulated US exports of NGL.

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Rising US oil exports are not only an issue for OPEC’s

Gulf members: African members are concerned as well. The

strong rise in US production has greatly reduced demand

there for light, sweet crudes from Africa, especially from

Nigeria and Angola, which have been forced to find new

markets elsewhere.

Most of the African crude backed out of the US now

goes to Asia,

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where it now faces competition from oil from

the United States. More recently, Venezuela has become

alarmed by oil developments in the United States, as Vene-

zuelan production and exports decline, risking the loss of

overseas markets to US exports, to which may be added the

threat of US sanctions targeted at Venezuela’s oil industry.

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3|RISING PRODUCTION

The United States oil production has grown more than that

from any other country since 2009, and it continues to

exceed the growth of anywhere else, with a rise of 0.7 mn

bpd forecast for this year and further increases after that. For

many years, US output was assumed to have peaked in

1970, after which it went into a long decline, which many

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