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Report: New Markets Needed to Sustain U.S. Energy Success Story

A new white paper from Bentek Energy, an energy market analytics firm, found that given the increase in domestic crude oil production, coupled with record levels of crude oil in storage and high refinery utilization rates, the U.S. crude oil market is over supplied by 800 thousand barrels per day (Mb/d) and that the only remaining source of demand is to repeal the ban on crude oil exports.

According to the white paper, Bentek long predicted that the U.S. crude oil market would eventually “hit the proverbial wall,” stating that:

The US refining complex has absorbed incremental US production by sourcing domestic crude over waterborne imports and operating at higher utilization rates than previous years. However, demand markets have reached the point at which they can no longer absorb this growing production and domestic storage is filling to record levels.

Here are Bentek’s key findings:

  • Inventory builds are implying the US is oversupplied by 800 Mb/d
  • Traditional sources of demand in year’s past (displacing imports, higher refinery runs) have largely run their course
  • The massive oversupply situation at current production levels provides a sobering narrative on the prospects for further growth in US production
  • Unrestricted exports of crude provide the last significant source of demand

Bentek focusses their analysis on crude oil in storage, historical drawdowns of crude in storage, refinery utilization rates and crude oil production levels. While the entire paper is worth the read (it’s only 10 short pages), the following excerpt is key to understanding the current market dynamic:

Crude barrels that cannot be absorbed into the US refining market, or displace waterborne imports, must accumulate in US storage complexes. Typically, crude inventories draw down at the end of the year when refineries maximize utilization. However, this trend reversed at the end of last year. In December 2014, refineries were operating at 94% utilization, yet crude inventories continued to grow throughout the end of the year and into 2015.

Bentek Energy: US Crude Stocks - oil exports

Overall, persistent storage builds clearly indicate that, though refineries have absorbed much more supply, the US refinery market is approaching the limits of its ability to absorb incremental, domestic production.

The paper concludes that the U.S. refinery market is approaching the limits of its ability to absorb incremental, domestic production for which the consequences are dire if reached because it threatens to curtail production and idle additional rigs, directly impacting jobs and local economies.

From the study:

Without unrestricted exports, the US E&P industry will suffer. To balance the market, US producers will have to reduce costs further, resulting in additional capital fleeing the energy market, and a loss of wages and employment in the industry. The cost reduction will trickle down through the supply chain to other industries that rely on E&P for a portion of their profits, including, but not limited to, service companies, steel tube and pipe manufacturers, trucking companies, and local businesses patronized by oil field workers.

Learn more about crude oil exports at www.oilexports.com.

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