Among the torrent of information in the Energy Information Administration’s monthly data released late last week, a new milestone was reached.
For the first time since early 1991, US net imports of petroleum fell to less than 7 million b/d.
The net import figure for October, the data’s most recent month, was 6.833 million b/d. There are plenty of comparisons that number could be put up against, but the most notable is to contrast it to the all-time monthly high for US net imports: 13.354 million b/d, also recorded in an October, this one in 2005. So that’s getting close to an almost 50% drop from the record level of net imports.
Of course, those are one-off comparisons. What is a more interesting contrast is to take the 2005 average level of net imports, which came in at 12.55 million b/d, and wait two months to see what the 2012 average was, when all the data for the year will have been released. Through October, that average was 7.626 million b/d, for a decline of almost 40% from the highest annual average. If net imports clock in at 7 million b/d the next two months, the year average for 2012 will be more than 5 million b/d less than that of 2005.
Total petroleum exports at 3.255 million b/d were the third highest ever (last December’s 3.677 million b/d was the top figure). The booming shale gas business led to the highest export ever of NGLs at 331,000 b/d. All the other categories of exports were at strong levels, but none set records. It was simply big numbers in a whole range of categories: gasoline, distillates and petroleum coke.
The US continued to dry up as a market for crude exporters; US crude imports of just under 8.1 million b/d were the lowest since a one-off number in early 2000. Excluding that, imports haven’t been this consistently low since early 1998.
And why were imports able to decline so precipitously and the US could still export what it did? Because US crude production soared to 6.82 million b/d from 6.484 from just a month earlier. That jump may look large, but remember that it came after a September in which the fallout from Hurricane Isaac at one point shut in more than 70% of US Gulf production. (Interesting side note: since the US has been keeping records of US production, going back to the 20s, the other months with one-month output gains in excess of 300,000 b/d are almost all in October or November, right after the heart of hurricane season.)
One thing that wasn’t a reason for the big drop in net import dependence was demand. Under the “products supplied” category, the EIA reported October demand of 18.722 million b/d. That’s up almost 600,000 b/d from a month earlier, and is more than the 10-month average of 18.59 million b/d. And with the combination of relatively strong demand, and the lowest net imports since the early 1990’s, US net import dependence was a mere 36.4%.
As we wrote a few months ago, the net import dependence figure can fluctuate, but more recently had been somewhat steady. The October figure breaks that trend.
Regardless of what it does next month, it’s interesting to ponder what would the value of the US dollar be if the country was still buying net petroleum barrels in excess of 12 million b/d, month after month, like it was doing in 2005.
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John -
Some numbers for 2013 (all EIA STEO basis):
US oil monthly consumption has been in secular decline since April 2011, and thus has been falling on a year-on-year basis (moving three month average) for 21 months, if we include Dec. 2012 (per STEO forecast). If the trend is my friend, then US consumption continues to decline going forward.
US oil consumption before the Great Recession started to decline at $75 Brent; during the recovery, it started to unravel in Nov. 2010 at $85 Brent and went negative at $125 and has stayed that way. I would estimate the current US carrying capacity–the price at which oil consumption begins to fall–at around $98 Brent currently.
If the US were able to increase consumption at $110+ Brent, then the nation’s appetitie for oil expendiures would have changed drastically compared to the historical record. This would seem unlikely.
Alternatively, the price of oil could fall, thereby permitting US oil consumption growth. However, I would note that Chinese oil consumption is up 8.9% (three mo to Nov compared to same period previous year)–and that at $110+ Brent. Impressive indeed. Now imagine how fast Chinese oil consumption would grow at, say, $80 Brent. Well, we have some idea. Chinese natural gas consumption increased by 21% in 2011. So if oil prices fall, expect China to take a big bite out of global consumption, bringing prices back to the $110 range.
I would add that, like the IMF, we see oil prices up 7% in 2013, closing the year in the $117 range for Brent. US oil consumption falls to 18.8 mbpd (-1.5%) in December 2013, compared to 19.1 mbpd for the STEO forecast for the same month.
Export dependence continues to fall accordingly.
Unless we see supply growth well above 2 mbpd in 2013, our forecasts are pretty robust. That is, you can’t really change the forecast without blowing up our model, which has provided very good US demand and Brent price forecasting for the last couple of years.
Put another way, if the US can increase oil consumption at $110+ Brent, it’s back to the drawing board for me.
“Regardless of what it does next month, it’s interesting to ponder what would the value of the US dollar be if the country was still buying net petroleum barrels in excess of 12 million b/d, month after month, like it was doing in 2005.”
We can, in fact, calculate this exchange rate. To import 12 mbpd, the US would have to squeeze China out of export markets in a big way. China’s carrying capacity is probably in the $120-125 Brent range. So figure you’d need to have Brent in the $130-135 range to divert imports to the US.
You could achieve this effect with an exchange rate of about 7.7 Chinese Yuan to the USD, compared to a recent rate around 6.3. We last saw the higher rate in early 2007, and I would be surprised to see it again anytime soon.
Brilliant insight as always, Steve. The one quibble I would have is that to mark as “impressive” Chinese demand growth at $110 Brent ignores the fact that some of the country’s consumption is subsidized through regulated prices, with the central government making up the difference, for example, by cash payments to refiners. So the normal process of demand destruction isn’t allowed to occur.
Retail gasoline prices in China are not particularly subsidized. They are around US levels, maybe a bit higher. Last I checked, gasoline in Beijing was around $4.50 a gallon–not a subsidized price to appearances. But retail petrol prices in China are set administratively, and as such they don’t vary with crude prices. Thus the refiners get squeezed from time to time due to fluctuating crude costs. But I don’t think that implies that prices are subsidized all the time as in, say, Saudi Arabia or Venezuela.
As for demand destruction: the oil supply is rising, but not enough to keep up with demand. Thus, consumption is re-allocated from the incumbent consumers–the OECD–to the emerging consumers–the non-OECD. Therefore, we see demand destruction only in the OECD (curiously, exactly those countries which experienced a financial and fiscal crisis); in the non-OECD (countries not in fiscal or financial crisis), we see oil demand growth restraint, not demand destruction. (If the oil supply were falling, we’d likely be seeing demand destruction in the non-OECD as well.) Put another way, the OECD is hammered between the anvil of a slow growing oil supply and the pounding of emerging market demand. I would emphasize that the non-OECD is not the victim here, but rather the perpetrator.
It’s worth pointing out the two strands of this story. Obviously the surge of oil production is one, but on the other hand the Energy Fitness of the US, where the US is using far less oil for transportation is the other major factor. Energy conservation and efficiency standards for autos actually works. Great news on two fronts
Nick -
Part of the model to which I refer above revolves around the pace of efficiency improvements in the use of oil. I am currently writing a paper on the topic.
Since 2005, when the oil supply stalled, the US has been able to achieve 2% average annual efficiency gains in oil usage (per unit of GDP) in response to significant oil price pressures. In better years, the typical upper limit of efficiency gains appears to be 4%, with a few years above that.
Thus, oil efficiency gains per unit of GDP may reasonably be expected in the 2-4% range per year. If we allow that oil consumption will fall annually by 1.5%–as I forecast in my 2009 paper “Peak Oil Economics’ and which subsequent events have validated–then US GDP growth will then be limited to 0.5-2.5% per annum (keeping in mind that this may be generous, as I have not separately accounted for fiscal stimulus and the increase in US oil and gas production).
Thus, the anemic GDP growth we have seen recently would not be attributed primarily to develeraging per Reinhart and Rogoff, but rather to an on-going oil “shock” (really more of a chronic shortage)–which we have been in since 2004 and continue to be in today.
If this is true, then the President’s budget, which envisions 4% GDP growth annually in the 2013-2017 period, overstates growth by a factor of two, and thus the deficit, tax revenue and government spending outlook is all too optimistic.
In short, a relative shortage of oil is only “good news” for those who do not care about prosperity, taxes and unemployment.