Why record U.S. oil exports are poised for even more growth

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Why record U.S. oil exports are poised for even more growth

FILE PHOTO - A view of the Tesoro refinery in Martinez California, U.S. on February 2, 2015. REUTERS/Robert Galbraith/File Photo

NEW YORK/HOUSTON (Reuters) – U.S. refineries are producing more fuel than ever as they seek to meet rising demand – from overseas, rather than the drivers on nearby roadways.

Last year, the U.S. became the world’s top net exporter of fuel, an outgrowth of booming domestic production since the shale oil revolution started in 2010. That’s a fundamental shift from the traditional U.S. role in global markets as a top importer and consumer.

Net exports are on track to hit another record in 2017, making foreign fuel markets increasingly important for the future growth prospects and profit margins of U.S. refiners.

Shale oil producers have provided refiners with abundant and cheap domestic crude supplies, giving them the raw material they need to produce internationally competitive fuel.

The nation set a record in 2016 by sending a net 2.5 million barrels per day (bpd) of petroleum products to foreign markets. That compares to net fuel imports of 2.3 million just a decade ago, according to U.S. government data.

Booming exports have bolstered margins at the biggest U.S. refiners – including Marathon Petroleum and Valero – and compensated for lack of strong growth this year in U.S. fuel demand.

Now, the government of U.S. President Donald Trump is seeking to deregulate oil and gas production to further leverage rising U.S. exports for international political gain – a policy Trump calls “energy dominance”.

Surging U.S. crude production has already complicated the ongoing effort by the Organization of the Petroleum Exporting Countries (OPEC) to tame a global glut that has halved oil prices since 2014.

The United States remains a massive importer of crude oil – regularly trading the top spot with China – but American refineries now re-export much of that oil as jet fuel, diesel and gasoline.

The U.S. has a growing role in satisfying demand for motor fuel in countries such as Mexico and Brazil, where the thirst for U.S. fuel is likely to accelerate amid refinery outages and high production costs.

Refined U.S. exports are also going further afield to Asia, and diesel exports to Europe increased in June to levels not seen in nearly two years, traders have said.

(See graphic: tmsnrt.rs/2sSqsRP)

Traditionally, oil traders, refiners and investors have considered U.S. fuel demand as one of the leading metrics for predicting international crude oil supply and price trends. Now, they are increasingly looking to foreign demand for U.S. fuel for guidance.

“Globally, you’re going to have increased demand for all of our products, and so our focus will go beyond the U.S. borders,” said Texas-based Valero’s Chief Executive, Joe Gorder.

In contrast, he predicted a “slight decline” in U.S. gasoline demand over the next decade.

U.S. gasoline demand hit a record in 2016, as low pump prices encouraged consumption, but has leveled off this year. Rising fuel efficiency in cars is expected to limit future domestic demand growth.

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