Domestic Production

It isn’t often that a market measure simultaneously shrinks in quantity and gains in importance, but that is the case for crude oil imports into Gulf refineries this year. Six to nine months ago, traders were predicting the end of imports, and signaling a declining interest in how much foreign crude is still making it into the US. The indifference has turned into keen interest as two trends emerge: A far from smooth decline in total volumes, and a rising correlation between imports and PADD 3 storage.  In today’s blog, we examine these developments and their implications for the market.

Growing Mexican demand for natural gas has been seen as a timely boon to Texas gas producers, which have been losing their Northeast and Midwest markets to the Marcellus and Utica. Gas exports to Mexico still are rising sharply, and several new gas pipelines are planned to move Eagle Ford, Permian and other US gas to Mexico. But the Mexican government is reforming its energy sector, a move that some hope will result in more aggressive development of domestic gas reserves. What does that mean for US gas exports to Mexico? Today we explore the changing lay of the land south of the border.

US domestic crude oil production took off in the past year. Most of the production growth is coming from three shale oil plays – the Bakken, Eagle Ford and Permian basins. A number of factors have combined to allow rising production to continue. Today we review what sustains increased crude production and whether it can continue.

The chart below shows total US domestic crude production since the start of 2009. Around August 2011, the level of production started to ramp up dramatically. Despite a brief respite when crude prices fell below $80 / Bbl earlier this year, production is rising again. The latest data from the Energy Information Administration (EIA) shows that between September 2011 and July 2012, production increased from 5.6 MMb/d to 6.3 MMb/d - that’s a 62 Mb/d production increase every month.