Slippery Milestone

A milestone was reached a couple of weeks ago.  

The US has surpassed the production rate of 113 million barrels per day (BPD) of crude oil, setting a record for the highest production level of any country.  Moreover, in the near-term this trend is expected to continue.

Yup, you read that correctly.  For the moment, we produce more crude than any other nation on the planet.  

Sure, the Saudis could open the taps and turn this all on its head; but that is unlikely to happen as global oil prices continue to afford the House of Saud plenty of profits. 

At risk of straying into Social Identity Theory (BIRG) how does it feel to be Number One? 

As a consequence we export a barrel of crude oil too.  (Pun intended).

US crude oil exports established a record in 2023, averaging 4.1 million barrels BPD, breaking the previous record set in 2022.  In the waning days of the Obama administration the previous ban on most crude oil exports was lifted and with the exception of a hiccup in 2021, the export of crude from the US to the rest of the world has increased every year. 

It is important to note that government does not drill for oil or gas.  Business does.  Technology advances in fracking and horizontal drilling have vastly increased productivity thus enabling businesses in the oil patch to bring more wells on-line all the while maintaining production of existing wells.  Furthermore, most of our domestic production is light, sweet crude; which happens to be a favorite of export markets.

Where does our export oil go?  Since Russia's unprovoked invasion of Ukraine most of it winds-up in Europe.  China was in second place last year with imports doubling those of 2022.  Export sanctions have forced Russia to sell their oil on the world market at a significant discount.  Consequently, US exports to India have fallen by about half as India increased their imports of lower cost Russian crude.

You're probably wondering with all of the record-setting domestic production why hasn't the price of a gallon of gas fallen to $1.50?  The short answer is that oil is a fungible commodity, traded globally and in dollars.  Fungible items are basically interchangeable (you cannot tell one county's oil from the other just by looking at it).  Other commodities, shares of stock, options and dollar bills are all examples of fungible goods.

Because oil is traded globally it is priced according to worldwide supply and demand.  If oil producing nations want to drive the price up; they reduce the supply.  In the unlikely event they want to bring the price down; they increase supply.  

You're probably thinking; "why don't we keep it all to ourselves and have cheap gas and diesel to ourselves?"  The answer is oil does not belong to the government.  We live in a capitalist economy and anybody crazy enough to do that would drive the oil companies out of business turning trillions of dollars of businesses into pumpkins and mice.

That's what Venezuela did.  And we know how that ended.

You're welcome....

 Sources: EIA and Petroleum Supply Monthly