The lead editorial in Friday’s Wall Street Journal was pure energy nonsense.
“Lessons of the Energy Export Boom” proclaimed that the United States is becoming the oil and gas superpower of the world. This despite the uncomfortable fact that it is also the world’s biggest importer of crude oil.
TheJournal uses statistical sleight-of-hand to argue that the U.S. only imports 25% of its oil but the average is 47% for 2017. Saudi Arabia and Russia–the real oil superpowers–import no oil.
The piece includes the standard claptrap about how the fracking revolution has pushed break-even prices to absurdly low levels. But another article in the same newspaper on the same day described how producers are losing $0.33 on every dollar in the red hot Permian basin shale plays. Oops.
The main point of the editorial, however, is to celebrate a surge in U.S. oil exports to almost 1 million barrels per day in recent weeks. The Journal calls lifting the crude oil export ban that made this possible “a policy triumph.” What the editorial fails to mention is that exports actually fell after the ban was lifted, and only increased because of Nigerian production outages (Figure 1).
Figure 1. U.S. Oil Exports Have Increased As Nigerian Production Has Fallen. Source: EIA and Labyrinth Consulting Services, Inc.
Tight oil is ultra-light and can only be used in special refineries, most of which are in the U.S. It must be deeply discounted in order to be processed overseas in the relatively few niche refineries designed for light oil. That’s why Brent price is higher than WTI.
It must also displace other light oil such as Nigerian Bonny Light. Civil unrest in the Niger Delta region interrupted oil output and provided a temporary opening for U.S. ultra-light to fill. Nigerian production is now increasing so look for U.S. crude exports to decline.
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