At the beginning of last December, the United States became a net exporter of oil for the first time in 75 years. This phenomenon occurred on the heels of the United States becoming a net exporter of natural gas in 2017. Long gone is the talk of peak oil of the early 2000s, which for now seems like a relic of the old way of American thinking about oil. That mindset revolved around a notion of dire scarcity and for a least a generation, oil capacity planning has been tinged with more than a hint of desperation and helplessness. Since the Arab oil embargo, which occurred 45 years ago, the entire idea of oil in the West has been held captive by the Middle East and its vast oil resources. And then fracking changed everything.
This new phenomenon appeared just in time as the global oil markets have proved just as contentious as ever. Even as countries in the Middle East are attempting to diversify away from oil, the black liquid is still the lifeblood of the world economy. But the United States now has a chance to control world events in the oil markets as opposed to being a victim of them.
The United States is now the world’s top producer of oil and gas. American oil output has been exceeding over 12 million barrels a day since February of this year (with the exception of one reporting week). This includes an average of over 3 million barrels of oil for export and almost 6 million barrels of refined products including gasoline, diesel, and jet fuel.
With the attack on the refinery and storage facility this week in Saudi Arabia, the United States is demonstrating that it is in a great position to leverage its newfound production capabilities. The attack disrupted over half of the kingdom’s production and has just about erased the spare capacity that Saudi Arabia holds for just such emergencies. The half of Saudi Arabia’s oil production capability that was destroyed represents over 5% of the world’s entire oil supply.
The general consensus from experts is that it will take at least three weeks to get Saudi Arabia’s missing production back online. However due to American production, it would take five months of the current outage to return global oil supply levels back to a 40-year normal average, according to Christyan Malek, head of oil and gas research for Europe, Middle East and Africa at J.P. Morgan
Asian importers of oil are looking for suppliers to step in and provide for the shortage they will experience with the large amount of capacity taken off the market in this week’s attacks in Saudi Arabia. Though the Abqaiq facility is the largest crude stabilization plant in the world and the second target, the Khurais oilfield, represents the second largest pumping capacity in Saudi Arabia, the American oil and gas market can easily fill the large Asian orders on demand. Markets such as China, India, South Korea, and Japan do not hold much in oil reserves. By most accounts, it is only around 10 days and is therefore not an optimal solution for their governments.
Furthermore, oil tanker prices have risen due to the fact that the ships are moored and waiting for instructions. The rerouting of tankers is driving up prices as they are having to divert their courses and travel longer distances to the U.S. to load before heading to Asian cities. According to the Wall Street Journal, the Abqaiq facility already has 8 supertankers waiting at the terminal. Some ships are being diverted to other Saudi Arabian ports to load and others are waiting idle awaiting instructions.