The recent chaos in the Red Sea, primarily due to attacks by Iran-backed Houthi rebels, has significantly disrupted international oil shipping routes. This situation has compelled international oil shippers to seek alternative sources for their crude oil needs, significantly benefiting U.S. shale producers.
The Energy Information Administration (EIA) reports a notable surge in U.S. petroleum exports as a direct response to these disruptions. The week ending December 29 saw a jump in U.S. petroleum exports by 1.377 million barrels a day, reaching 5.292 million barrels a day. This spike is attributed to concerns among international shippers about potential attacks on the open sea and the high costs associated with alternative routes, such as sailing around the Cape of Good Hope in South Africa. Consequently, sailing to the U.S. Gulf Coast to procure cheaper U.S. oil barrels has emerged as a safer and more economical option, especially for European Union customers.
The U.S. shale industry has been performing robustly, with production rates exceeding earlier forecasts. The country is now producing over 13 million barrels per day of crude oil, surpassing any other country’s output. This growth is expected to continue, supported by efficiency gains and increased spending and production plans by major U.S. shale companies. Despite some predictions of a slowdown in U.S. oil output increase in 2024, other industry officials and analysts believe that the production growth could again exceed the Energy Information Administration’s projections.
In September, U.S. crude oil production set a new monthly record of 13.236 million barrels per day. The increase in production is not limited to the Permian Basin; many other shale basins, previously stable, are experiencing a revival. This soaring production has led to a significant increase in U.S. crude oil and petroleum product exports. The EIA forecasts an average U.S. crude oil production of 12.93 million barrels per day this year, expected to rise to 13.11 million barrels per day next year. Dan Eberhart, CEO of a privately owned oilfield services company, believes these projections are conservative and expects the U.S. to continue marching towards an output of 15 million barrels a day before 2026, driven by efficiency and productivity gains in various shale formations.
OPEC has acknowledged the substantial growth in U.S. oil production, which continues to reach new highs. U.S. shale basins are expected to account for about 48% of the projected non-OPEC liquids supply growth in 2024. The U.S. shale sector is focusing on capital and operational efficiency to deliver measured growth and higher returns to investors. Large exploration and production firms in Texas and southern New Mexico are prioritizing asset acquisition and debt reduction, while smaller firms are aiming to grow or maintain production. This growth in U.S. oil production is poised to continue challenging OPEC’s efforts to control oil prices.
In summary, the turmoil in the Red Sea has inadvertently steered international oil shippers towards U.S. shale producers, driven by the need for safer and more cost-effective oil procurement options. The U.S. shale industry, already on an upward trajectory, is well-positioned to meet this increased demand, with production levels exceeding expectations and projected to grow further. This shift not only diversifies the global oil supply chain but also underscores the strategic importance of U.S. shale oil in the global market.
Citations:
- International Shippers Turn to US Oil as Solution to Red Sea Attacks
- U.S. Shale Growth Could Exceed Forecasts in 2024
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