In late May, the oil tanker Anne – three football fields long and six stories high – steamed into the port in Corpus Christi, Texas.
Now, oil tankers in the Gulf Coast are nothing new. They come from all over the world, full of oil, to supply U.S. refineries there.
But the Anne was different…
For one, it was the first time an oil tanker that large – capable of holding up to 2 million barrels of oil – had ever docked at an American oil terminal in the Gulf Coast.
More importantly, the Anne was empty…
You see, the goal wasn't to import oil, but to export oil.
Exports Are Saving U.S. Shale from Shooting Itself in the Foot
You see, the Anne was in Corpus Christi to literally "test the waters" and see if oil tankers of her size could be used to export oil from there.
Now, with crude oil market prices once again rising, you may think that exports wouldn't be that important.
But as we enter the latest uptick in an ongoing tug-of-war between genuine market forces and artificial manipulations for short-term gains, several factors have now become clear.
When it comes to the trading range for WTI (West Texas Intermediate, the main U.S. benchmark crude oil rate used to set futures contracts in New York), there is a presumption that there is much more excess volume ready to be sold, beyond what demand requires.
This continues to weigh on WTI, the U.S. price of oil.
Some of this concern is valid, but much is just hype to keep prices down, thereby providing immediate further profits for those who are yo-yoing short positions on oil.
Of course, most of those have now been unwound as the price of oil moves back up.
As a reader of Money Morning, you'll no doubt know that I consider balancing to be the best approach to market requirements. Even just last week, you saw the argument for the continuing need to balance among sources of energy.
When it comes to domestic oil, the primary balance remains the traditional one between supply and demand.
The penchant for shale oil producers to overproduce has been one reason for the decline in crude prices. That has led some industry leaders, such as Continental Resources Inc. (NYSE: CLR) CEO Howard Hamm, to caution U.S. producers not to drive themselves into the red.
Last week during a CNBC interview, Hamm noted that the current low price for oil is not sustainable. Continued overproduction runs the risk of driving the prices down even further, obliging curtailment of drilling by U.S. operators.
The pursuit of near-term revenue is counterproductive, especially for a range of smaller producers facing renewed problems on the debt front and a wellhead price (the price the operator receives when the oil comes out of the ground) that cuts below breakeven.
By producing more, they are effectively shooting themselves in the foot.
However, one new wrinkle is emerging that is regarded as a path to both continue producing oil and yet restrain the downward pressure on U.S. oil prices…
U.S. Oil Exports Are Booming
I'm talking, of course, about exports.
American refineries already lead the world in the daily export of oil products (gasoline, diesel, low sulfur content heating fuel, and naphtha). What is new involves the export of straight crude oil.
After an over four-decade-long prohibition, Congress finally allowed the export of oil last year.
And from nothing, America today exports over 1.1 million barrels a day. When combined with the exports of oil products, the United States has catapulted into a top global player.
All of which sets the stage for a major interest directed to the port of Corpus Christi, Texas.
There is a flurry of activity underway there with the terminal capacity and pipeline access to major basins such as the Permian in West Texas and Eagle Ford in South Texas.
Corpus Christi has all the earmarks of becoming the next major hot spot for energy investment. It holds a central location among pipeline conduits, export capacity, and petrochemical complexes.
Now, this largess of oil coming from the Permian and Eagle Ford can't easily be used domestically, for a very simple reason…
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.