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After 40-year ban, U.S. starts exporting crude oil
America is wasting little time getting back into the oil exporting business.

Just weeks after Congress lifted a 40-year ban on exporting oil, the first shipments of the black stuff left U.S. ports for Europe.

The first freely-traded shipments of U.S. crude are symbolic of the country's newfound role as a leading producer of oil. America's entry into the world market can also be viewed with relief by those worried about potential supply disruptions. After all, many big oil producers are located in volatile parts of the world susceptible to geopolitical shocks.

America officially banned exports in 1975. It came two years after an OPEC oil embargo that banned oil sales to the U.S. had sent gas prices skyrocketing. Newspaper photographs of long lines of cars outside of gas stations became a common and worrisome image.

Fast forward 40 years and the world has changed drastically, with booming U.S. oil production from the shale revolution creating an epic supply glut that recently sent oil prices below $30 a barrel.

Some of that American oil is now finding a home overseas. On New Year's Eve ConocoPhillips (COP) and NuStar Energy (NS) announced what they said was the first exports of U.S.-produced light crude oil since the ban was lifted. The companies shipped oil pumped from the Eagle Ford Shale of Texas.

Other shipments believed to be containing oil pumped from the U.S. have left for destinations in Europe in recent weeks as well.

Just a year ago American oil would have been a hot seller on the global stage. It was trading about $12 a barrel cheaper than Brent crude, the global standard. That means European buyers would have been willing to front the heavy costs involved with shipping oil across the Atlantic.

But that's changed. U.S. oil prices are now just $1 or $2 a barrel cheaper than Brent.

"The economics don't entirely work for U.S. crude to be traded everywhere in the world," said Brian Scheid, a senior editor at Platts.

There are also logistical hurdles keeping U.S. oil from straying too far from home. Due to the longstanding export ban, America's Gulf Coast doesn't currently have the equipment in place needed to load the giant supertankers that other countries typically use to ship oil long distances, according to Nilofar Saidi, a crude oil market analyst at ClipperData. Smaller ships can be used on voyages to Latin America and Europe, but aren't ideal for far-flung places like East Asia.

http://money.cnn.com/2016/01/29/investing/us-oil-exports-begin/index.html




Why crude oil prices keep falling and falling

Oil supply* (in green) remains much higher than demand (yellow) — about 1.5 million barrels per day higher — with the excess getting saved for later in stockpiles. And according to the IEA, that glut is currently expected to persist for the rest of 2016: "Unless something changes, the oil market could drown in over-supply."

This wasn't always the case. Between 2010 and 2014, as you can see above, oil demand was soaring around the world, as countries recovered from the financial crisis but global production was struggling to keep up. Many older oil fields were stagnating. Conflicts in places like Libya and Iraq were restricting supply. Countries had to draw down their stockpiles, and prices soared to around $100 per barrel.

Those high prices, however, spurred drillers in the United States to use innovative hydraulic fracturing and horizontal drilling techniques to unlock vast quantities of oil from shale formations in places like North Dakota and Texas. It's hard to overstate the impact of the fracking boom: US crude oil production has nearly doubled since 2010.

Eventually, supply caught up with demand — and then surpassed it. That's when the crash came.

By mid-2014, global demand was starting to slow down. Europe was still reeling from the eurozone mess. China's economy was starting to stumble. But the United States continued to produce more and more oil. Iraq and Libya were also starting to bring more production back online. So prices began sliding, down to $70 per barrel.

At that point, many people expected Saudi Arabia and other oil producers in OPEC to cut back on their own production to prop up prices, as they have in the past. (Conventional wisdom had held that Saudi Arabia needed $100 per barrel oil to balance its budget.)

Surprisingly, that didn't happen. Saudi Arabia decided to increase production in order to maintain its market share, hoping that the subsequent fall in oil prices would crush US frackers, who require higher prices to stay profitable.

Ever since Saudi Arabia's decision to maintain output in late 2014, prices have kept tumbling and tumbling — to $50 per barrel, then $40, then $30 — largely because supply has remained strong and demand has been weaker than expected.

US drillers turned out to be far more adaptable to low oil prices than the Saudis thought, as companies cut costs and boosted productivity in order to keep the oil flowing. (US production has finally stopped growing over the past few months, but the decline has been far less severe than originally predicted.) Iraq has nearly doubled production since 2014 — to more than 4 million barrels per day — as it recovers from conflict. Thanks to the nuclear deal with the US, Iran will start exporting more oil this year as sanctions are lifted, offsetting declines elsewhere.

In the meantime, major developing economies like China, Russia, and Brazil remain mired in a slump, putting a damper on oil consumption. An unusually mild winter helped suppress demand for heating oil. And a stronger dollar means that some countries now have to pay more for crude imports, which further limits consumption.

That's the basic story. As long as supply far outstrips demand, oil prices will stay relatively low.

Cratering prices are having all sorts of ripple effects around the world. Car owners in places like the United States, Europe, and Japan are suddenly paying way less for gasoline, which means they have more money to spend on other things. (Arguably, low prices have helped juice the US economy this past year.) SUVs and gas guzzlers are coming back in style.

On the flip side, crude producers like Saudi Arabia and Russia are struggling to balance their budgets and suffering from a major revenue crunch. Oil companies in the United States and elsewhere are watching profits evaporate. Banks that financed the US shale boom are starting to reel from heavy losses. It's a big deal all around.

In January, the IEA pointed out that prices could easily slide lower this year if Iran ramps up production faster than expected. "In a scenario whereby Iran adds 600 kb/d to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 mb/d in the first half of 2016. … So the answer to our question is an emphatic yes. It could go lower."

Ultimately, the supply and demand dynamic is the thing to keep an eye on. And expectations matter a lot here. Whenever new data shows an unexpected boost in oil production or an unexpected drop in oil demand, prices tend to go down. Conversely, a surprise drop in supply or a surprise surge in demand will push prices back up.

So if, say, the cold war between Saudi Arabia and Iran heats up and somehow leads to disruptions that crimp production, prices could rise. (So far, that hasn't happened.) If low prices are harder for the US shale industry to handle than anyone thought, that could cause prices to rise even higher. If China's economy suddenly rebounds unexpectedly, that could have a similar effect. Or maybe Iran will do something that causes EU and US oil sanctions to snap back into place. Alternatively, perhaps the supply glut — and hence low prices — will persist indefinitely. It's a guessing game, and there are lots of plausible guesses.

http://www.vox.com/2016/1/12/10755754/crude-oil-prices-falling