Why did US crude oil imports remain mostly flat in 2013?
Crude oil imports
As U.S. crude production has risen by 1 million barrels a day in 2013, investors might think that U.S. oil imports from major OPEC nations have fallen by a large amount. Depending on how you slice and dice the data, you may be disappointed that this wasn’t the case. We look at imports from major OPEC nations because oil from these countries is transported using crude tankers. Oil from Canada or Mexico uses pipelines.
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U.S. weekly oil imports from major OPEC nations stood around 3.5 million barrels a day at the start of this year. Imports subsequently rose above 4.0 million barrels a day, to many analysts’ surprise, as U.S. oil production continued to rise. The rise in imports had contributed to a widening trade deficit in January 2013, according to Bloomberg Businessweek.
Narrowing of the Brent-WTI spread
The narrowing of the Brent-WTI spread (see previous articles in this series) was a likely driver of higher imports, as domestic oil became relatively more expensive compared to imported oil. As a result of the narrowing spread, refiners had less incentive to use domestic oil than before.
But notice that underneath the overall imports from major OPEC nations, there’s a divergence. Oil from Saudi Arabia has risen from just 1.0 million barrels a day at the start of 2013 to almost 2.0 million barrels a day by the end of the year. For the week ending December 20, 2013, oil imports from Saudi Arabia were estimated at 1.6 million barrels a day. On the other hand, oil imports from Venezuela have stayed relatively flat, while imports from Nigeria fell to zero.
As our crude tanker overview and investment cheat sheet series noted, Nigeria is known for producing some of the highest-quality oil in the world. So the lower imports from Nigeria suggest refiners are cutting back on foreign oil that has a similar quality to U.S. crude. Notice how crude oil from Saudi Arabia has been rising. Part of this is often explained by improving global economic conditions and higher crude prices. But the other side of the story could be attributed to continuous imports of lower-quality crude.
Global trade dynamics
If the latter story holds true, then tankers may actually benefit over the long run from longer distances, because it takes longer to move crude from Saudi than from West Africa or South America. While crude imports from West Africa are currently negative, they would benefit from longer distances when West African oil finds a new home in Asia.