Take a good look at the oil game

June 9, 2015 10:48 AM

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I’ve given it a day since we’ve come back to work and have dealt with the OPEC decision.

Funny the difference a few months make. It’s painfully obvious that many bought into the hype the first time around. We were over-bought at that time and busy getting high on our own supply. Back in November, the United States was pumping 9MM b/d and getting along quite well with $90 crude oil. Well because OPEC knew that the rest of the world was getting restless with such a high barrel of oil, they decided it was time to give the market some tough love. They weren’t going to let too many producers (Iraq, Russia, Iran) get too big for their britches. Those countries were just letting it come to them and letting the money come in and all the while letting things go their way.

Think again about what was happening back then. Iraq was seeing ISIS grow and were looking to just keep increasing their production with talk of 5MM b/d. Russia was ignoring everyone’s call to get out of Ukraine while the oil money just kept flowing in. Iran was being Iran and the nuclear negotiations were dragging on longer than a Stevie Wonder acceptance speech. Here’s where things fall upon the grassy knoll.

If we just ponder a few moments here, the teeming millions might just have some good water cooler talk. See the one thing the Saudis probably knew from the start was that any U.S. production was not going to give way to foreign imports...ever. For all that we thought that the OPEC move was to curb the U.S. growth, we’re actually up 500K b/d in U.S. crude production at 9.5MM b/d. Yes, the EIA came out yesterday to say that the production is likely to slip as we head forward into July, but it’s more of a courteous nod to the Saudis.

Big Guv might be saying we’re going to hit a ceiling and you can still be comfortable with your 1MM b/d you’re sending to America. You might notice that the EIA hasn’t mentioned anything lately regarding the record high imports we’ve seen from Canada (2015 3.0MM b/d). Don’t think that Keystone is really just an environmental issue; it’s a lot bigger than that, and if we were to increase our imports from Canada, whose oil do you think would be the first to get displaced? Mmm, hmm.

It’s fun to speculate about the politics surrounding oil, but for the first time in a long time, the United States is at the table. There’s a lot going on here with the oil game and it’s worth taking a good look at it once in a while. There’s not a lot more that’s driving the game and it’s sad. As the United States continues ahead, though, the crude oil export ban seems inevitable.

That’s going to step directly on the fine toes of the fine folks at OPEC and with Japan back on the rise (3% GDP), guess who has the best ties with them? Remember that not until 2005 that Japan was the second largest importer of crude oil in the world. They are still bringing in about 6MM b/d and that’s not including a lot more refined products too.

The dance floor might be getting crowded soon and we want to make sure there’s room under the disco ball.

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About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website. He can also be reached at carl.larry@frost.com