Crude oil prices took a dive last Friday, as markets reacted to weekly data from the US Energy Information Administration (EIA) which showed that, for the first time in several decades, the US was a net exporter of crude oil over a one-month period. This reflects a number of factors, first and foremost a significant expansion in the production of US shale oil over the past several years. Once deemed uneconomical at conventional market prices, shale now accounts for well over half of all US crude oil production. The lifting of a US congressional ban on some oil exports in 2015 also contributed to the US entry into the global crude market.
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Later this week, the traditional oil exporters of OPEC and Russia will meet in Vienna to discuss their production targets for the year ahead. While OPEC countries still account for a significant share of global crude production, that share has fallen over recent years as US shale has clawed its way into the market. This has left many market observers wondering about the impact that OPEC can continue to have on the oil price. Indeed, when severe tensions in the Strait of Hormuz earlier this year led only to modest rises in the oil price, analysts were quick to point at the dampening effect US shale was having on global supply.
Nevertheless, the US is still far from global dominance in the crude oil market. When oil prices tanked in 2015, shale output eventually contracted (albeit with around a nine-month lag). While the fall in prices at the end of 2018 has not yet dented shale production this year, US drilling activity has begun to tail off. Further, despite the noteworthy headline figure of positive net exports from the EIA last week, this statistic includes petroleum products at various stages of production, too. Net exports of only crude oil, while also falling, remain negative. Analysts will still be casting a keen eye on the OPEC meeting later this week to signal supply for the year ahead.
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