The oil markets sold off yesterday because the United States achieved energy independence! Yahoo! Ok, maybe I am exaggerating. I sometimes get too excited. I know oil sold off yesterday because Spanish and Greek protestors took to the streets as Spain has to reveal its new austerity plan to the adoring crowds. I also know that oil is rebounding as speculation that China is going to step up to the plate with more easing after a report that showed Chinese industrial profits dropped 6.2 percent from a year earlier in August, falling for a fifth month. But still lost in all of the global turmoil is the fact that it is time to get excited about what might be a major story if it were not for all of the economic turmoil the world is going through.
As reported by Asjylyn Loder of Bloomberg News, US oil production last week hit the highest level since January 1997! Not only that, but according to data from the Energy Information Administration, America, in the first six months of this year, met 83 percent of its energy needs with its own domestic production. If the trend continues through 2012, it will be the highest level of self-sufficiency since 1991. Who said we can’t be energy independent?
Oh sure there is the dark side of this story. One reason we are hitting those impressive numbers is because demand is down due to weakness in the economy. But still there is no doubt that the country is becoming more fuel efficient as well as benefiting from the miracle of horizontal drilling and hydraulic fracturing. Data showed that last week crude oil production went up by 3.7 percent to an impressive 6.509 million barrels a day. Because of that US imports of foreign oil have fallen by 3.2 percent from the same period a year earlier.
And what is more we should see US production continue to rise as the most exciting oil production innovations since Colonel Edwin Drake drilled down into northwestern Pennsylvania. The US with a combination of oil production and more reliance on natural gas and fuel efficiency should achieve energy Independence in the future! Take that OPEC!
Of course that does not mean that OPEC won’t keep trying. David Bird of Dow Jones wrote last week that funny thing happened on the way to U.S. energy independence — profits got in the way. He writes that the shale oil boom in the U.S. and Canada, where new technologies have been used to unlock crude trapped in rock formations, had been widely touted as the way to wean the U.S. off Mideast imports and lead the nation to energy self-sufficiency. Yet he points out that US. crude imports from the Persian Gulf leapt 30% in the first half of this year versus same period last year, according to the U.S. Energy Department's Energy Information Administration. Crude imports from the region recently topped those from Canada in May 2012 — which has been the top U.S. supplier since early 2006. This is coming even though flows from domestic shale oil fields have lifted U.S. output to a 14-year high, near 6.3 million barrels a day, and crude imports from all suppliers are 2.2% below year-earlier levels.
He says that the U.S. is turning back to Persian Gulf crude because of a seismic shift in supply-and-demand patterns. The nation has evolved into a net exporter of petroleum products as domestic refiners are taking crude from wherever available and turning it into diesel, gasoline and other oil products for growing Latin American nations — and even Europe, which is suffering from refinery closings.
Valero Energy Corp., the nation's biggest refiner, said strong exports of gasoline and distillate fuel oil, such as diesel and heating oil, to Latin America and Europe have insulated the industry from weak domestic demand.
He says that the jump in Persian Gulf imports comes as Saudi Arabia, the world's largest oil exporter and the de facto OPEC leader, has cranked output up to 30-year highs, above 10 million barrels a day, to offset potential supply gaps from stricter sanctions on Iran, the second-biggest oil supplier in the Organization of Petroleum Exporting Countries. The U.S. hasn't imported Iranian crude since the revolution, but that 25-year gap doesn't insulate the nation from gyrations in global oil prices.
RBOB futures went on a wild ride as a report of a refinery explosion at Canada’s largest refinery had traders re-reading the weekly supply data and reminding them that despite all of the global turmoil, the environments, especially for gasoline, were rather bullish. First of all they reported that gasoline production decreased last week, averaging 8.9 million barrels per day. That led to a 500,000 barrel drop in supply, putting them at the lowest level since October of 2008. Yes, there is some seasonality in the decline, yet supply is still below normal.
We also saw that crude oil supply surprisingly fell. Crude oil imports averaged 7.6 million barrels per day last week, down by 2.3 million barrels per day from the previous week. Crude supply dropped over all by 2.4 million barrels compared to expectations for a build. Distillates also fell by 500,000 barrels. The EIA also reported that gasoline and diesel fuel prices fall for the first time in 12 weeks. They said that the average retail price of regular gasoline fell five cents last week to $3.83 per gallon. That is still 32 cents per gallon higher than last year at this time. Prices decreased in all regions of the nation except the Rocky Mountains, where the price was up less than a penny to remain at $3.77 per gallon. The West Coast price decreased less than a penny to remain at $4.07 per gallon. The largest decrease came in the Midwest, where the price is $3.81 per gallon, down eight cents from last week. The Gulf Coast price decreased six cents to $3.60 per gallon, while the East Coast price dropped a nickel to $3.83 per gallon.
The national average diesel fuel price decreased a nickel to $4.09 per gallon, 30 cents per gallon higher than last year at this time. The largest decrease came on the West Coast, where the price is down eight cents to $4.32 per gallon. The Midwest price decreased six cents to $4.02 per gallon. The prices in the East Coast, Gulf Coast, and Rocky Mountain regions all decreased three cents to $4.09 per gallon, $4.00 per gallon, and $4.23 per gallon, respectively.