Nancy Yamaguchi, Contributing Editor, analyses how the US oil market has recovered in a post-pandemic world.
Has any other oil market achieved such a dramatic recovery and surge as the US in recent years? It is hard to imagine one. This article elaborates on the US position as the world’s largest oil market, the largest oil producer, the leader in refinery throughput, the largest product exporter, and now one of the largest crude oil exporters as well. If this article had been written 20 years ago, it would have been shelved with science fiction and fantasy. Yet here we are. This article discusses the dramatic turnaround in US oil production, how the US has changed the dynamics of oil trade, the remarkable recovery achieved since the COVID-19 pandemic, whether the US could produce more oil, and the current status of the gasoline market.
The US changes the global balance
During the two decades from 1984 through 2004, US crude oil imports grew at an average rate of 5.5%/y. Imports of 3.426 million bpd in 1984 grew until they surpassed 10 million bpd in 2004, adding to national concerns about oil import dependency. Indeed, President George Bush pointed out that the US was “a nation addicted to oil”, in his 2006 State of the Union Address. In 2004, the US Energy Information Administration (EIA) forecast that US net crude imports would reach 15.7 million bpd in the year 2024. This forecast was published in the EIA’s ‘Annual Energy Outlook’ (AEO), which is the nation’s official energy market forecasting exercise. The AEO forecast uses the National Energy Modeling Systems (NEMS). The modelling work covers all forms of commercial energy in all sectors, over a 30 year forecasting horizon. NEMS forecasts energy production, imports, conversion, use, and prices. The modelling scenarios are set up according to a wide array of input assumptions on macroeconomics, international energy markets, resource availability and costs, behavioural and technological choice criteria, cost and performance characteristics of energy technologies, regulatory policies, and demographics. As each year goes by, new data developments are incorporated, and the forecasts change accordingly.
As time passed, however, the forecast changes were not at all incremental. The nation’s actual crude import requirement differed so dramatically that all assumptions were upended. It is not an exaggeration to state that the US has changed the global oil balance in ways that no one foresaw.
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