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Will Increasing US Production Lead to Increasing Exports?

David Becker
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Recent increases in domestic crude production have sparked discussion on how rising crude oil volumes will affect exports. Given the likelihood of continued growth in domestic crude production and the decline in imports, the focus has turned to the grade of crudes that are being produced. The lighter and sweater the grade, the more desirable the demand for the crude as it is easier to refine into products such as gasoline.

Imports continue to decline showing the reliance of the US on its own production. U.S. crude oil imports averaged over 7.1 million barrels per day last week, down by 686,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.1 million barrels per day, 7.5% below the same four-week period last year.

EIA analysis of production indicates that U.S. supply of lighter API gravity crude will continue to outpace that of medium and heavier crudes. More than 60% of EIA’s forecast of production growth for 2014 and 2015 consists of sweet grades with API gravity of 40 or above. If export become more active from the US, the demand will focus on lighter grades, likely increasing the price for these crudes.

Prices increased on Friday following a robust US employment report. U.S. Nonfarm payrolls climbed 217k in May from a revised 282k April surge and a 203k gain in March, for a 3-month average of 234k. The unemployment rate was steady at 6.3%. Household employment rose 145k, with the labor force up 192k. Average hourly earnings edged up 0.2% following the flat reading for April. The workweek was steady at 34.5. Private employment increased 216k, with goods producing employment up 18k, construction up 6k, and manufacturing up 10k.

The July contract moved higher on Tuesday and poised to test resistance near $105 per barrel. Support is seen near an upward sloping trend line that comes in near 101.00.

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