Oil Glut Threatens US Shale Revolution

The year 2014 could pose a milestone for the U.S. oil industry. In its latest annual World Energy Outlook, the International Energy Agency predicted that the U.S. would become the world’s largest producer of oil by 2015, thus surpassing Russia and Saudi Arabia.

Comparably, the U.S. Energy Information Administration estimates that the U.S. will produce 9.6 million barrels of oil per day by 2016. In less than a decade, the shale revolution in the U.S. has reversed a four decade-old trend of increasing oil imports to become a major exporter by the end of this decade.

However, politics might get in the way of this remarkable development. With increased oil supplies coming from the newly discovered shale oil reservoirs, America is overwhelmed with abundant quantities of crude oil without the means to export it due to the 39-year-old-ban on exports of unprocessed oil products outside North America, introduced in the middle of the oil crisis in 1975. Currently, most U.S. shale oil is exported to Canada where it is sold at a higher price.

Because the U.S. has been the world’s largest importer of oil for decades, American refineries are predominantly fitted to refine the heavy lower-quality crude imported from Mexico, Venezuela and the Middle East rather than the sweet-light domestic crude. As a result, analysts are forecasting that by July 2014, the U.S. refineries will reach their limits to process excessive crude oil.

As the oil glut scenario looms, the pressure is rising on President Obama’s Administration and Congress to allow crude oil exports at the same time as a general debate on this issue is heating up. U.S. shale oil producers are therefore facing a tough dilemma. A continuous increase in oil production, coupled with the lack of political will to relax oil export laws, might bring a significant drop in domestic oil prices and could prove disastrous for the industry, already burdened with very narrow profit margins and fierce competition. Extracting oil from shale is an expensive business, and to be profitable, U.S. shale oil producers need the price of oil to stay above $80 to $90 a barrel.

via Oil Glut Threatens US Shale Revolution.

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