A Flood Of U.S. Oil This Summer

The U.S. sent out record amounts of crude oil to foreign destinations last week.

Domestic oil output reached an all-time high.  This was due to growth in oil production in the #Permian Basin. The ballooning production has weakened benchmark West Texas Intermediate crude at Cushing, Oklahoma.  And this has made it more attractive to overseas buyers.

The U.S. was once the world’s largest importer of crude.  However, now the U.S. is closing in on Russia to become the world’s largest producer.  America exported 2.33 million barrels of oil per day last week.  This is the highest on record going back 25 years.  This month, shipments averaged 1.76 million a day. The EIA also reported that U.S. crude output jumped to 10.6 million barrels a day.

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The Iran Nuclear Deal

Meanwhile, the United States has threatened to withdraw from the Iran nuclear deal and re-impose sanctions.  If the nuclear deal is scrapped and sanctions return, at least 250,000 to 350,000 barrels of Iranian crude per day could be at risk of disruption.

Ehsan Khoman is head of research and a strategist at financial group MUFG.  Markets are underestimating the impact that a collapse of the Iran nuclear deal — and the re-imposition of U.S. sanctions on Iran — could have on prices.  “In terms of the upside risk to oil prices, we think that anything north of $80 for Brent crude and WTI above $75 could firmly take place. We think markets have not fully priced-in the size and magnitude of Iranian sanctions,” he said.

What’s more, French President Emmanuel Macron said he believes that U.S. President Donald Trump will withdraw from the Iran nuclear accord.  “My view — I don’t know what your president will decide — is that he will get rid of this deal on his own for domestic reasons.”  “You will have probably, it’s almost sure, a period of tension in such a scenario,” he said. “We have to accept that because there is no other option.  It is the bet of your president that this period of tension could be fruitful because it could push them to move.”

U.S. Domestic Production.

Any disruption of OPEC production would likely cause investors to turn to U.S. shale production.  That is because U.S. producers would be the biggest beneficiaries of a disruption of OPEC production.

In the Permian Basin of west Texas, the U.S. oil industry is entering a new phase of consolidation.  This will likely drive small and mid-sized firms from the West Texas shale play as energy companies buy up competitors to expand holdings in the world’s hottest oil-producing region.  Since the bottom of the last oil bust in early 2016, wildcatters, private equity investors, independents and oil majors have flocked to the West Texas shale play.  As a result, land prices have risen as high as $60,000 an acre.  That has set the stage for a wave of mergers and acquisitions.

Which Companies Will Benefit?

Goldman Sachs maintain  a bullish outlook for #U.S. energy stocks.

The evolving U.S. shale playing field has created what Goldman terms “non-shale scale.” That means that fewer participants are driving projects that are at or below shale on the oil cost curve. That makes U.S. energy more viable overall. There is more to it: these producers also, in aggregate, don’t have significant enough volume contribution to prolong global oil oversupply once shale growth decelerates. Goldman expects that deceleration to occur after 2020.  This is due in part to competition from Brazilian sources and Canadian oil sands.

So-called shale scale prompted Goldman to reiterate buy ratings on Occidental Petroleum Corp. (OXY), EOG Resources Inc. (EOG) and Pioneer Natural Resources Co. (PXD).