LONDON — The U.S. overtook Saudi Arabia and Russia to become the world’s biggest producer of oil as extraction of energy from shale rock strengthens the nation’s economy, Bank of America Corp. said.
U.S. production of crude oil, along with liquids separated from natural gas, surpassed all other countries in the first six months, the bank said in a report today. The country became the world’s largest natural gas producer in 2010. A Commerce Department decision to allow the overseas shipment of processed light oil called condensate has fanned speculation the nation may ease its four-decade ban on most crude exports.
“America is now the world’s leading producer of oil and gas,†Francisco Blanch, the bank’s head of commodities research in New York, said in the report. “The American shale revolution has had a transformational effect on the U.S. and global economies in recent years. Low energy prices are a key edge of the U.S. economy.â€
Oil extraction is soaring at shale formations in Texas and North Dakota as companies split apart rocks using high-pressure liquid, a process known as hydraulic fracturing, or fracking. The surge in supply combined with restrictions on exporting crude is curbing the price of West Texas Intermediate, America’s oil benchmark, prompting calls from some lawmakers to change overseas-shipment rules.
Production growth outside the U.S. has been lower than the bank anticipated, keeping global oil prices high, Blanch said. Partly as a result of the output boom, WTI futures on the New York Mercantile Exchange remain at a discount of about $7 a barrel to their European counterpart, the Brent contract on ICE Futures Europe’s London-based exchange. WTI was at $103.93 a barrel as of 10:44 a.m. London time.
Rising U.S. oil supplies come as an Islamist insurgency threatens output in Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. Territorial gains in northern Iraq by a group calling itself the Islamic State has spurred concerns that oil flows from the south could be disrupted. Exports from Libya have been disrupted by protests, while Nigeria’s production is crimped by oil theft and sabotage.
Libya will resume exports as soon as possible from two oil ports in the country’s east after taking back control from rebels who blocked crude shipments for the past year, Mohamed Elharari, spokesman for the state-run National Oil Corp., said by phone yesterday from Tripoli.
The U.S. will consolidate its position as the world’s biggest producer in the coming months if returning Libyan supply limits the need for Saudi barrels, said Julian Lee, an oil strategist who writes for Bloomberg News First Word. The observations he makes are his own.
Fracking is used in states from North Dakota to Pennsylvania, helping push U.S. natural gas production to new highs in each of the past seven years, according to the U.S. Energy Information Administration. Annual investment in oil and gas in the U.S. is at a record $200 billion, reaching 20 per cent of the country’s total private fixed-structure spending for the first time, Blanch said.
Condensate export licenses awarded by the Commerce Department are “a positive first step†to dispersing the build up of crude supply in North America, Blanch said in a previous report on June 27.
Pioneer Natural Resources Co. said on July 25 that the Commerce Department had allowed export of condensate produced in Texas, provided it was first subject to preliminary distillation. The U.S. could potentially have daily exports of 1 million barrels of crude, including 300,000 of condensate, by the end of the year, according to a June 25 report from Citigroup Inc.