Last week, the USA made a major decision, which is expected to bring major changes to the entire global economy. The thing is that President Obama signed the 2016 draft budget. This is good news for U.S. oil companies since the oil export embargo is now canceled, which means those companies are now capable of exporting their oil. This is a major event since this is the beginning of a whole new era when the USA turned from an oil importer into an oil exporter. Some experts say this is going to bring some major changes to the global market.
In particular, the global market of crude oil is expected to see more challenges since the demand of crude oil is going to expand at the expense of American oil, not to mention the fact that Iran is going to come back to the oil market as a major player after the sanctions are cancelled. On top of that, Russian and OPEC are not going to cut their oil production as well. In fact, OPEC has actually increased it unofficially from 30 million barrels a day up to 31-32 million barrels a day
By the way, the shale oil production volume in the USA reached the the level of conventional oil production, which is 4,5 million barrels a day. This is the result that wasn’t expected by anyone when the U.S. shale oil production just started in 2007.
Up until 2015, American shale companies used to be oriented exclusively to the domestic market. The situation has now changed. Apparently, the biggest reason for this change boils down to ultra-low oil prices. Experts say that now U.S. oil exporters have got new stimuli to develop and expand their businesses.
At the same time, the price difference between Brent and WTI oils is shrinking. During the shale boom in 2011-2014, WTI oil was $10/b cheaper than Brent oil on average. In 2011, the difference was close to $27/b. At this point, the difference is marginal – just $1-2/b. This has to do with the canceled embargo.
For those of you who don’t know, the USA imposed the embargo on its oil export in 1975, 2 years before Arabian exporters canceled their oil exports to the USA. The U.S. government was forced to implement such a decision in order to avoid a fuel deficit. However, the Republicans, who have been active supporters of this decision, started urging the government to cancel the embargo only a few years ago. There has been a lot of disputes over the issue between the Republicans and the Democrats. The Democrats say that their opponents are using this measure only to improve their overall image in advance of the forthcoming elections, whereas the oil export is a temporary solution and is not going to bring the USA any good over the long term ,especially as oil prices keep going down and make oil exports less profitable and meaningful.
The Democrats are backing green energy instead of supporting oil companies. They say that the oil export is meaningless since it is going to provoke a decline in the amount of oil rigs and oil companies, thereby increasing the rate of unemployment and raising gasoline prices. Simply put, this is going to be a zero-sum game, if not worse.
