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Annabelle Ju/MEDILL 

Crude oil prices for the last decade at West Texas Intermediate, the benchmark for U.S. crude oil.


Report: US to be world's biggest oil supplier by 2016

by AnnabelleJu
Feb 20, 2014


As the US economy continues to grow, experts say it will rely less on the world’s major oil exporters in Africa and the Middle East, regions largely sustained by U.S. imports.

According to the International Energy Agency, the economy will grow by 2.8 percent in 2014, higher than the 2.6 percent it previously forecasted. The International Monetary Fund predicts the global economy will grow in the same direction by 3.7 percent.

Eventually the U.S. will pull ahead of Saudi Arabia and Russia in oil production, becoming the largest oil supplier in the world by 2016, according to a report by the energy group. An estimated 9.6 million barrels of oil will flow per day in the country, reversing the upward oil import trend that has been ongoing for four decades.

But a projected increase in supply doesn’t necessarily mean crude oil prices are going down, experts say.

Crude oil prices at West Texas Intermediate, the benchmark for U.S. crude oil, are expected to be $93 per barrel on average in 2014, according to the U.S. Energy Information Administration. WTI crude oil futures for March delivery traded at $102.91 per barrel on the New York Mercantile Exchange Thursday, up $8.45 from $94.46 a year ago. Prices peaked at $103.31 Wednesday, their highest level since Oct. 8, and are expected to remain high in the coming weeks.

“Certainly, a more secure domestic supply is something prominent; it’s an admirable goal,” said Paul Donovan of Liquidity Energy LLC. “However, there’s a lot more that affects the oil market coming from the demand side.”

Donovan cited three main elements that might offset any downward pressure: potential for inflation, increased demand in fast-growing economies like China and India, and decreased worldwide supply.

However, senior E&P analyst Curtis R. Trimble of Global Hunter Securities LLC says demand growth in the U.S. is fairly minimal.

“The largest drivers of demand increases in the last several years, like India and China, will continue to be the largest drivers of demand growth worldwide,” Trimble said. “Crude oil is a cyclical commodity whose price is largely dependent on worldwide economic growth.”

There is also the global phenomenon of “peak oil.” Geoscientist M. King Hubbert theorized there is a point of maximum oil production that will eventually lead to complete exhaustion of oil.

In 2013, OPEC crude oil production was 30 million barrels per day on average, 0.9 million barrels per day less than the previous year, according to the U.S. Energy Information Agency. The agency estimates that OPEC crude oil production will continue to decline, allowing non-OPEC companies like the U.S. to become a larger exporter.

Experts say the U.S. is in a better position as Libya, which has the largest oil reserve in Africa, is still trying to recover its weakened supply.

OPEC expects global oil demand to rise by 1.1 million barrels per day, which is higher than usual growth. In fact, it’s increasing faster than the supply expansion, making some analysts believe that there will be an upward trend in crude oil prices.

“In the late fourth quarter, the demand really started taking off,” said Brian Milne, energy editor at Schneider Electric.

Crude oil demand in the West will expand “for the first time since 2010” by 92.5 million barrels per day in 2014, according to the International Energy Agency.

Still, there is a significant barrier the U.S. must overcome to become a major oil supplier.

After the 1975 oil crisis, the U.S. banned unprocessed oil exports to areas outside of North America. Because of that law, crude oil inventories will continue to rise, but not necessarily exports.

“I would expect a lengthy policy debate on the potential for exporting crude oil,” Trimble said.

There were 1.06 billion barrels of crude oil in U.S. inventories in the week ended Feb. 7, according to the U.S. Energy Information Administration petroleum report released earlier this month. That is a 1.0 percent decrease from 1.07 billion barrels a year ago.

Even if things go smoothly on the domestic front, there are international factors to consider, some experts say.

“Any major Middle Eastern crisis would see a major spike in prices,” said Oliver Sloup, director of managed futures at iitrader.com. “But, generally speaking, obviously, increased supply should keep a cap on prices.”