Illustration: Rebecca Zisser/Axios
The U.S. has taken the global oil market by storm — becoming the world's largest oil producer in 2018 and on track to surpass Russia and perhaps even Saudi Arabia to become the world's top exporter by 2024.
Why it matters: Thanks to the end of a 40-year-old crude oil export ban signed by President Obama, a shale boom and a host of geopolitical sea changes, the U.S. is poised to reshape the global oil market over the next 10 years and beyond.
The International Energy Agency (IEA) expects the U.S. to account for 70% of the increase in global production capacity in the next 5 years.
- "Inevitably, the status quo will change," Neil Atkinson, oil markets division head at IEA, tells Axios.
- "The U.S. is becoming a big player in global oil markets, and it will become a net exporter of oil on average for 2021 for the first time in 75 years. This is a good thing for markets as it adds to consumer choice and flexibility and helps to improve global oil security."
What's happening: The U.S. is exploiting its natural advantages. The type of oil found in the U.S. is lighter and sweeter (contains less sulfur) than oil from other major producers like Canada, Venezuela and Iran. U.S. shale also allows eager investors to get oil fields online quickly rather than taking multiple years to develop.
That's leading investors to push more money towards shale projects, Michael Tran, managing director of global energy strategy at RBC Capital Markets, tells Axios.
- "As a result what we believe you're on track for is a timeframe where the barrels that are coming to market are becoming lighter and sweeter and ... heavy, sour barrels are becoming increasingly constrained."
Global dynamics also are strongly in the U.S.'s favor.
First, U.S.-led sanctions on Venezuela combined with its state-oil company's slow collapse will see the country with the world's largest oil reserves reduce its already marginalized capacity by almost half over the next year.
- Iran's production capacity is expected to fall by 1.2 million barrels per day and Nigeria is facing homegrown oil market woes.
Second, the UN's International Maritime Organization next year will bar ships from carrying fuel that contains sulfur content higher than 0.5% and cap their sulfur emissions, benefiting light, sweet crude.
- Maritime shipping accounts for about 4%–5% of the oil market's 100-million-barrel-per-day total.
Third, developing countries like China, which are driving new demand for crude exports, also are likely to move more toward light, sweet crude as their populations rely less on generators and heating oil, and as construction spending slows down, reducing the need for asphalt — all of which rely on heavy crude oil.
The bottom line: Both market forces and international regulations are pushing global demand towards exactly what the U.S. is selling. Given the booming supply of U.S. oil, that likely means a cap on prices.