Friday’s US CPI data turned the risk switch off and there was a massive exodus from risky to safe assets. The re-positioning continued yesterday morning as both equities and oil trended further south and Brent at one point was more than $3/bbl below last week’s settlement price. In the afternoon, however, oil investors gave one of their clearest indications that whilst inflation is inevitably slowing economic expansion and therefore acting as a break on oil consumption, they think that immediate supply issues are currently outweighing demand considerations.

Right on cue, the managing director of ONGC Videsh, the overseas investment company of Indian ONGC that has a 20% stake in the 250,000 bpd Sakhalin 1 oil project, said that after Exxon Mobil declared force majeure as a consequence of the invasion of Ukraine disruptions in production and exports are likely to continue for months to come. Given the widespread withdrawal of international oil companies from Russia and the planned insurance ban on tankers carrying Russian oil such disruptions are to be prevalent in the near future. The Libyan production shutdown has also aided yesterday’s oil price rally.

Both WTI and Brent eked out gains although it has to be pointed out that the rally from the day’s lows was coupled with fierce selling in crack spreads, which sent the price of the CME Heating Oil more than 800 points lower. The RBOB contract lost 1,369 point, $5.75/bbl equivalent, on the day. Given the growing lack of availability of Russian products this trend is deemed temporary and is expected to reverse shortly.

The rebound in crude oil prices yesterday was accompanied with further widening of the backwardation. The July/August WTI spread has moved from $2.33/bbl last Wednesday to $2.68/bbl yesterday. The premium of August Brent over September has stretched from $2.43/bbl to $3.20/bbl in less than a week and Dated Brent for next week is priced $8.60/bbl above forward, implying tight physical market.

Oil has been defying the financial gravity that pulls equities down. The divergence should persist but so should volatility and the path higher is expected to be bumpy. Whilst oil will be under the influence of prompt supply issues Wednesday’s rate decision from the Federal Reserve could easily cause further turbulence in the oil market. The underlying supply-demand balance will receive a fresh makeover from OPEC today and the IEA tomorrow and will also be eagerly watched and analysed.

Self-sufficient US

The latest EIA data on oil export/import released on the last trading day of May, which covers the period up to the end of 1Q shows what is becoming conspicuously obvious. Despite healthy domestic oil consumption, the world’s most significant demand centre does not only reduce its addiction on foreign oil, both crude oil and products, but actually increases its independence on it. Looking at historical monthly estimates there have been several milestones on the way towards this independence. The first one probably came just after 2010 when the shale industry started to be a force to be reckoned with, crude oil production decisively broke over 5 mpbd and reached the annual peak of 12.3 mbpd in 2019. Then 2011 was the first year when the US became a net exporter of petroleum products and has never looked back ever since. In the year of the pandemic, combined crude oil and petroleum product exports averaged above that of imports and the US turned into a net oil exporter.

Crude oil

The country has come a long way to reduce its dependence on foreign crude oil. The decline in both gross and net crude oil imports is impressive. Of course, until 2015 the two figures were broadly the same and the divergence only started when the ban on crude oil exports was lifted at the end of that year. Anyway, gross crude imports have fallen from over 10 mbpd in 2006 to 6.3 mbpd this year. On a net basis the decline was more than 7 mbpd as imports have dived below 3 mbpd in 2022. The country’s crude oil dependency (gross imports divided by gross imports plus domestic production) has declined from 67% in 2006 to 35% this year.

During this process former allies have become less relevant from the energy security point of view and others have kept their dominant role, chiefly because of their geographical proximity to the US. OPEC exports to the US have dropped from over 5 mbpd to below 1 mbpd during the above-mentioned period whilst non-OPEC exports have remained stable around 5 mbpd. To translate this seismic change into the language of market share OPEC’s slice of the US crude oil imports cake has shrunk from over 50% to below 15%. Non-OPEC exporters are now responsible for 85% of US crude oil imports compared to around 50% 16 years ago. Shipments from Saudi Arabia have nosedived from over 1.5 mbpd to below 500,000 bpd. No wonder that the US-Saudi relationship has undergone profound changes although now that inflated pump prices in the US hurt the chances of the incumbent administration to perform in the midterm elections the President is planning a visit to the “pariah” state. Canadian crude oil exports into the US, on the other hand, has more than doubled from 1.8 mbpd to 3.9 mbpd.

Petroleum products

The same trend is spotted on the product front. Although the robust US refining industry ensures a relatively stable supply of assorted petroleum products and the volume of refined products arriving at or leaving the country is chiefly the function of market forces, gross imports declined from 3.6 mbpd in 2006 to 2 mbpd today – another sign of growing oil independence. With falling imports gross exports started their ascent. As mentioned above, the US turned into a net product exporter in 2011 (438,000 bpd) and gradually increased its volume on an annual basis reaching 3.7 mbpd in the first three months of the current year. Gasoline exports have risen from 142,000 bpd in 2006 to 823,000 bpd this year. Distillate exports have swelled from 215,000 bpd to over 1 mbpd over the same period whilst 2.8 mbpd of finished petroleum products have left US shores this year compared to 1.1 mbpd 16 years ago.

For the third year running the US is a net exporter of crude oil and petroleum products. In 2020 this figure stood at 635,000 bpd only to dip to 164,000 as the recovery from the pandemic got under way. The new status quo is being restored in 2022. Year-to-March the net export figure is 736,000 bpd. Given the high inverse connection between domestic crude oil production and net import volume unless crude oil output collapses (it will not, it is expected to rise slowly in coming years) US energy security is as good as guaranteed.