Released June 22, 2022 | SUGAR LAND
en
Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--With lingering supply-side issues supporting commodity prices, a key driver of inflation, the U.S. government sees little relief coming from the Gulf of Mexico.
The Gulf of Mexico accounts for slightly less than 10% of total U.S. crude oil production. That 10%, however, works out to be an average of 1.8 million barrels per day (BBL/d).
By way of comparison, of the 13 members of the Organization of the Petroleum Exporting Countries (OPEC), only five of them can feasibly produce more than that. When OPEC-member Libya descended into civil war in 2011, the International Energy Agency (IEA) called on its members to release oil from their strategic reserves to compensate for the shock.
Libya can churn out about 1 million BBL/d, but has only hit that mark a few times since civil war began. The closest equivalent OPEC producer is Nigeria, which averaged around 1.2 million BBL/d last month. Insurgency there can often lead to force majeure declarations, adding further strain to the global market.
And then there's the war in Ukraine. Russia is among the largest crude oil producers in the world, though sanctions are stifling its full potential. Saudi Arabia, meanwhile, is the only OPEC member that can feasibly put more oil on the market in short order, but it's so far been reluctant to open the spigot any further.
That leaves it largely to the U.S. to help fill the void. Inland production -- to stay with the OPEC comparison -- is equivalent to two Iraqs, at some 8.8 million BBL/d. Offshore production is expected to average 1.8 million BBL/d both this year and next, though the federal government said that no new offshore fields are expected to start in 2023.
That latter point may be cause for concern in a market facing lingering supply-side challenges.
"Declining production from existing Gulf of Mexico fields is greater than the increase in production from new fields for natural gas and is equal for crude oil," the U.S. Energy Information Administration (EIA) reported.
With few other producers able to rival the United States -- or Russia and Saudi Arabia, for that matter -- the trends outlined by the EIA suggest the supply-side issues could be durable.
And even if there were more oil available, refining capacity is at a premium. Oil by itself is more or less useless -- it's the refined petroleum products that matter. That is the focus du jour for U.S. President Joe Biden, whose declining poll numbers reflect the angst building up at the consumer level. Retail gasoline prices, one of the most ubiquitous consumer prices around, are flirting with $5 per gallon for the national average, reflecting the 40-year high for inflation.
"I want an explanation from them on why they are not refining more oil," Biden said last week.
At issue, however, is that refineries already are running close to their full utilization rates. And they're closing down too, so utilization rates near 94% might not be enough to address demand.
Meanwhile, refineries are tooled for certain types of crude oil -- heavy, light, sweet and sour -- so it's not as simple as opening up the tap -- there's specificity to consider. And then there's the buffer from the coordinated release of strategic oil reserves to address the Russian shortfall.
Without those extra barrels, the global market will be severely undersupplied should a major producer such as Libya falter again. It's also hurricane season in the Atlantic, and the season is expected to be busier than ever. Nearly all of the U.S. offshore production potential can be idled by storms, posing the risk that the equivalent of OPEC-member Nigeria could be knocked offline this year.
IEA members have already tapped their strategic reserves to address the shortage brought on by the war in Ukraine, so there's nothing left to address any further shortfalls. Recessionary strains from higher interest rates could dampen demand enough for the market to balance out, but until the Ukrainian war ends, there may be little left to fill the void.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
The Gulf of Mexico accounts for slightly less than 10% of total U.S. crude oil production. That 10%, however, works out to be an average of 1.8 million barrels per day (BBL/d).
By way of comparison, of the 13 members of the Organization of the Petroleum Exporting Countries (OPEC), only five of them can feasibly produce more than that. When OPEC-member Libya descended into civil war in 2011, the International Energy Agency (IEA) called on its members to release oil from their strategic reserves to compensate for the shock.
Libya can churn out about 1 million BBL/d, but has only hit that mark a few times since civil war began. The closest equivalent OPEC producer is Nigeria, which averaged around 1.2 million BBL/d last month. Insurgency there can often lead to force majeure declarations, adding further strain to the global market.
And then there's the war in Ukraine. Russia is among the largest crude oil producers in the world, though sanctions are stifling its full potential. Saudi Arabia, meanwhile, is the only OPEC member that can feasibly put more oil on the market in short order, but it's so far been reluctant to open the spigot any further.
That leaves it largely to the U.S. to help fill the void. Inland production -- to stay with the OPEC comparison -- is equivalent to two Iraqs, at some 8.8 million BBL/d. Offshore production is expected to average 1.8 million BBL/d both this year and next, though the federal government said that no new offshore fields are expected to start in 2023.
That latter point may be cause for concern in a market facing lingering supply-side challenges.
"Declining production from existing Gulf of Mexico fields is greater than the increase in production from new fields for natural gas and is equal for crude oil," the U.S. Energy Information Administration (EIA) reported.
With few other producers able to rival the United States -- or Russia and Saudi Arabia, for that matter -- the trends outlined by the EIA suggest the supply-side issues could be durable.
And even if there were more oil available, refining capacity is at a premium. Oil by itself is more or less useless -- it's the refined petroleum products that matter. That is the focus du jour for U.S. President Joe Biden, whose declining poll numbers reflect the angst building up at the consumer level. Retail gasoline prices, one of the most ubiquitous consumer prices around, are flirting with $5 per gallon for the national average, reflecting the 40-year high for inflation.
"I want an explanation from them on why they are not refining more oil," Biden said last week.
At issue, however, is that refineries already are running close to their full utilization rates. And they're closing down too, so utilization rates near 94% might not be enough to address demand.
Meanwhile, refineries are tooled for certain types of crude oil -- heavy, light, sweet and sour -- so it's not as simple as opening up the tap -- there's specificity to consider. And then there's the buffer from the coordinated release of strategic oil reserves to address the Russian shortfall.
Without those extra barrels, the global market will be severely undersupplied should a major producer such as Libya falter again. It's also hurricane season in the Atlantic, and the season is expected to be busier than ever. Nearly all of the U.S. offshore production potential can be idled by storms, posing the risk that the equivalent of OPEC-member Nigeria could be knocked offline this year.
IEA members have already tapped their strategic reserves to address the shortage brought on by the war in Ukraine, so there's nothing left to address any further shortfalls. Recessionary strains from higher interest rates could dampen demand enough for the market to balance out, but until the Ukrainian war ends, there may be little left to fill the void.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
