Standing Up to OPEC

Matthew Carr By Matthew Carr, Emerging Trends Strategist, The Oxford Club

Oil & Gas

American companies – and investors – are about to profit in a big way from a recent major policy change.

And it’s a game changer… not just for the U.S., but for the entire world.

The United States and OPEC have had a tumultuous relationship from the beginning.

The U.S. has strong friendships with some cartel members like Saudi Arabia and Kuwait.

Yet we are at odds with others, most notably Iran, Iraq and Libya… though not so much Iraq and Libya since their longtime leaders were ousted.

But the implications of the conflict are massive. After all, it’s the reason Congress banned U.S. crude exports in 1975.

This ban stayed in place for 40 years, until December 2015. Admittedly, for most of that time, the U.S. restrictions on crude exports were meaningless. The country relied heavily on imports after domestic production peaked in the 1970s. So there was no reason to even discuss lifting the ban.

But the shale revolution changed all of that.

By 2013, the U.S. was producing more crude than it was importing. That was the first time this had happened in nearly 20 years.

And in June 2015, the U.S. slipped past Russia and Saudi Arabia to become the world’s largest oil and gas producer.

Less than six months later, the ban on U.S. crude exports was lifted. This effort was led by companies such as Continental Resources (NYSE: CLR), Pioneer Natural Resources (NYSE: PXD) and ConocoPhillips (NYSE: COP).

The argument was pretty straightforward: The U.S. was already in an oil glut. If companies weren’t allowed to export, the price of crude would collapse and drilling would become unprofitable in the U.S.

The dream of energy independence would die.

In the end, the Republican-controlled Congress pushed the bill through.

In the interim, so much has transpired that the bill isn’t even talked about. And most investors have probably forgotten that it is in place.

More importantly, America didn’t just timidly increase exports. It went full throttle…

Since 2006, U.S. exports of crude have increased 2,014%!

Just from 2011 to 2016, U.S. exports of crude surged more than 1,000%!

And there’s no sign of that slowing down.

One of our closest neighbors – Canada – is the largest market for U.S. crude. Canada was exempt from the export ban. And it’s the biggest loser right now with U.S. crude open to international markets.

After surging to a peak in 2014, U.S. crude exports to Canada have waned. And in fact, since July 2016, they’ve fallen 52.9%.

Think about this: In 2015, prior to the ban being lifted, 92% of all crude exports went to Canada.

Today, our northern neighbor remains the top destination. But Canada accounted for just 58% of exports in 2016.

In 2015, the U.S. exported crude to 10 different countries. These were Canada, Mexico and a few other countries that benefited from a partial lifting of restrictions in 2014.

But in 2016, the number of countries that bought American oil almost tripled to 26.

Outside of Canada, Europe is the No. 1 destination for U.S. crude. Here, the Netherlands is the biggest buyer. It’s followed by Italy at No. 4, the United Kingdom at No. 5 and France at No. 11.

Asia is the second-largest consuming region of U.S. crude. Japan, Singapore and South Korea are strong markets. But the ever-hungry dragon, China, is now the third-largest buyer of American oil.

And the U.S. also shipped crude to eight different countries in Central and South America.

In 2016, U.S. crude exports averaged 520,000 barrels per day. And that’s despite the fact that the country’s total oil production declined.

This is an exciting time because we’re in the very early stages of the U.S. being a player in the international crude export markets. Things are just beginning to ramp up. And this is why OPEC is worried about U.S. production.

Exploration and production companies are now looking to international markets for their excess production. In fact, Pioneer Natural Resources is looking to send two cargoes to Asia this year. All this means that energy investors finally have the opportunity – after waiting 40 years – to profit from American exports of crude. And American companies can now stand up to OPEC on the international stage.

Good investing,

Matthew