Tag Archives: crude oil

Diving Back Through 2016

As we look back over the past 12 months, the year was full of ups and downs in the oil and gas industry and the global markets. For us, business was brisk as our products support a wide range of processes and applications. We’ve used our blog to share with you important topics and look forward to sharing the year’s highlights.

Since the oil and gas industry is subject to internal and external forces, we shared with you the latest industry concerns, trends, and updates. The industry is complicated. As a commodity crude oil is complex and understanding how the markets set oil prices is an important factor. Differentiating Crude Prices: Brent and WTI, The Future of a Benchmark, and The Economic Effects of Falling Oil Prices explain the variables. The crude industry also struggles with storing and delivering crude oil. This capacity and storage issue is ongoing.

Because of the volatility in the oil markets, many of the oil producing regions of the country saw a shift in production throughout the year. In response, we kept you up-to-date on the workings at Eagle Ford, the Permian Basin, and the Delaware Basin. Global concerns also affect the industry and just as we were starting to see a recovery and rise in prices, the UK voted to leave the EU. This was the topic of our July blog and it remains to be seen if Brexit has lasting effect on global oil prices.

Highlighting the potential of environmentally friendly compressed natural gas was coincided with April’s celebration of Earth Day. And as of recent, reviewing the petrochemical industry helped us to expand on an integral part of the petroleum industry.

We’d like to thank all of you for a very successful 2016 and are looking forward to continuing to serve you in 2017. From all of us at Southwest Process Control, we wish you Happy Holidays and a Healthy New Year!

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Time to Lift the U.S. Oil Exports Ban?

In 1975, the United States enacted a ban on the exportation of crude oil.  The Energy Policy and Conservation Act (EPCA) was legislated in response to the energy crisis that ensued as part of the Organization of Arab Petroleum Exporting Countries’ (OAPEC) 1973 oil embargo, which had quadrupled the cost of oil.  At the time, many countries throughout the world were seeing their domestic oil production drying up, and the U.S. was no exception.  Then, as now, domestic and world economies were heavily dependent on fossil fuels.  The U.S. Congress sought to enact policies to protect domestic oil supplies by increasing and conserving energy production, particularly crude oil.

The ban on exporting U.S. crude was part of a multi-pronged strategy to try to insulate the domestic economy from volatile global crude markets.  It included numerous conservation measures, as well as fuel standards for motor vehicles.  A reserve of petroleum known as the Strategic Petroleum Reserve (SPR) was officially created to keep a supply of emergency fuel for the United States (the SPR is still with us, and currently holds 691.3 billion barrels of oil).  The crude oil export ban played an important role in this overall strategy, with the goal to keep as much oil at home as possible to cut reliance on international imports.

A Changing Energy Landscape

Oil-LandscapeWhile the crude oil export ban may have made sense in the context of the energy crisis of the 1970s, the domestic oil production landscape is far different today.  There are certain conditions under which oil can be exported, such as if in the form of gasoline as well as when exported to Canada and Mexico under certain circumstances.  However, the vast majority of crude oil exports remain banned under the provisions of the EPCA.

There is a growing constituency who believe that it’s time to lift this oil export ban.  While energy production remains an important concern, circumstances have changed drastically since the ban was put into effect.  In the 1970s, U.S. domestic oil production was slowly disappearing.  The landscape is much different today, with innovative techniques such as hydraulic fracturing and horizontal drilling creating a new oil boom in recent years.  Shale formations such as Eagle Ford in Texas and Bakken in North Dakota are seeing some of their highest levels of productivity in their existence.  Given these new circumstances, many see the EPCA oil export ban as a hindrance—not only to the producers of American crude, but to the overall domestic economy.

Potential Benefits of Lifting the Ban

A recent paper published by the Council on Foreign Relations reports that crude exports could provide an important boost for the economy with an estimated $15 billion per year in revenue possible by 2017.  While oil that has been refined into gasoline can be exported, much of the crude that is coming from U.S. shale formations is lighter and sweeter than what Gulf Coast refiners are designed to handle.  This creates a bottleneck of unrefined light crude that depresses prices, ultimately constraining production and hampering a major domestic source of energy.  The whole world still relies on crude oil, and many willing buyers abroad would be able to work with the lighter, sweeter crude being produced in the U.S. with their existing refineries.

The exportation of crude oil has a number of other potential advantages as well.  The slowing of domestic production that occurs as a result of the ban increases America’s reliance on imported energy.  By lifting the ban, the United States’  leverage as an oil trade partner could increase significantly, especially if the U.S. became a major crude exporter.  It would also demonstrate a commitment to free and fair trade, and provide America’s allies with a stable source of crude.  It also has the potential to further catalyze domestic oil production, increasing employment and local service economies.

Where the Ban Lift Stands Now

There are a number of methods that could be employed to lift the oil ban.  The law allows for crude exports to occur if the Commerce Department determines that there are economic or technological reasons that certain types of crude oil can’t be marketed domestically.  The president could also effectively reverse the law by declaring it counter to the national interest, but many experts believe that the current administration is unlikely to act on its own to lift the oil ban at this time.  Perhaps the most effective method would be for Congress to change the law, and two senators are attempting to do just that.  Senators Lisa Murkowski (R-AK) and Heidi Heitkamp (D-ND) have introduced a bill to lift the EPCA export ban.  They hope to build bipartisan support on the logic that expanding exports will help the U.S. become a global energy leader while bolstering the economy at home.

While there is still some resistance to lifting the ban, supporters are hoping that the current bill (or one like it) will eventually succeed in reversing the 40 year old embargo.  Both sides of the political aisle believe that increasing U.S. exports is key for improving the domestic economy.  Supporters of lifting the ban argue that the current domestic abundance of oil is the perfect opportunity for opening trade doors.  Only time will tell if the current bill will succeed in reversing the ban, but one thing remains certain: the constituency of lawmakers and industry representatives that believe the law is outmoded is growing all the time.  If U.S. shale formations continue to contribute to the overall oil boom, the unrefined crude will eventually have to go somewhere.









International Oil Production and Its Effect on Prices

Heavy International Production Despite Glut

To say that the oil market has been volatile in recent years would be an understatement.  Trying to get a grasp on the direction of current prices can be as elusive as forecasting the weather in unpredictable climates.  As they like to say in those places, if you don’t like the weather, wait an hour—it will change.  Few could have predicted in 2014 when oil was selling for around $110 a barrel that within a year the prices would be reduced by over half.  We have examined some of the influences that domestic oil production has had on prices, but that only covers part of the story. Global-Oil Oil producing countries across the globe continue to yield crude at a breakneck pace, contributing to an oil glut that has kept prices low.  The reasons this trend is occurring are somewhat complex, but it’s worth examining to broaden our understanding of the influences of international oil production on energy prices.

The Impact of Russia

Along with the U.S. and Saudi Arabia, Russia is one of the world’s largest producers of oil.  While their status as an energy producer remains high, their economy is struggling.  In what NASDAQ called the most optimistic forecast this year, the Russian Finance Ministry estimated that their economy would shrink by 2.5% in 2015.  Oil and gas revenues have been accounted as making up 70% of Russia’s export income.  Numbers like these underscore the difficulty Russia faces when oil prices drop, with losses running around $2 billion in revenues for every dollar decrease.  Yet, in spite of all this, Russia has stood firm on not cutting production to increase the price of oil.  Energy Minister Alexander Novak, as quoted by the BBC, has given this justification: “If we cut, the importer countries will increase their production and this will mean a loss of our niche market.”  This reasoning, in addition to Western sanctions over Russian actions in the Ukraine, makes Russia reluctant to proceed with any action that might make it lose its prominence as a top international energy supplier.

The Influence of Saudi Arabia

Saudi Arabia remains the world’s top exporter of oil.  Along with Russia, the Saudis have chosen to keep the production of oil at record levels in spite of low oil prices.  While not facing the same struggles as Russia, many analysts believe that Saudi Arabia has kept oil production at such a high level to try to keep competitive sources for oil at bay.  Throughout April, the kingdom rose their production to 10.3 million barrels per day, a record high.  This has played into the decision by OPEC late last year to keep production levels steady in spite of falling prices.  A Saudi official, quoted by the Financial Times, admitted that the main goal was to slow down competitive producers and to retain their favorable position as the world’s leading supplier of oil.  The official explained, “We want oil to continue to be used as a major source of energy and we want to be the major producer of that energy.”

A Rebound in the Works?

While the recent drop off in oil prices has produced a slowdown in domestic production, U.S. shale producers are ready for a comeback, especially if oil prices begin to rise again.  While the price is changing all the time, the Wall Street Journal reports that crude for July delivery rose to $60.02 a barrel.  Estimates by EOG Resources indicate that double digit production growth can be possible if prices increase to $65 a barrel.  U.S. shale producers, having played such a large role in the oil boom of recent months, may be positioned to benefit from their resources once more.

U.S. Shale Supplies: A Key Energy Source for the Future

Of course, there are few things harder to predict right now than the future cost of oil.  While Russia, Saudi Arabia, and other countries continue to position themselves as world energy suppliers, recent U.S. domestic shale oil reserves loom large in the future of energy.  These supplies made the U.S. the top producer of petroleum in the world, and massive reserves still exist.  The future may remain uncertain, but shale reserves will remain an important domestic source of energy, providing oil for domestic consumers and influencing the supply, demand, and prices of oil worldwide.