Fracking Threatens OPEC as U.S. Output at 20-Year High

A surge in oil production has pushed U.S. output to the highest level since 1992, a trend expected to further reduce the nation’s reliance on the Organization of Petroleum Exporting Countries.

The world’s largest crude consumer has cut net petroleum imports from OPEC by 37 percent from the January 2008 record of 6.371 million barrels a day, according to the Energy Information Administration. Rising domestic output combined with increasing Canadian crude will further cut imports from the 12 OPEC countries by the end of 2014, according to a report today from Citigroup Inc.

Improvements in horizontal drilling and hydraulic fracturing, or fracking, have spurred drilling in states such as Texas, North Dakota and Oklahoma. The U.S. pumped 7.06 million barrels a day in the week ended Feb. 8, up 1 percent from the previous week and extending last year’s 19 percent gain, the EIA said today.

“Increasing amounts of North American oil production puts pressure on OPEC to find other markets for their oil,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone today. “It changes the political dynamics between the U.S. and OPEC.”

Refining Advantage

Rising U.S. production has helped keep domestic prices pegged to the West Texas Intermediate futures contract cheaper than London-traded Brent, giving U.S. refiners an advantage and making the country the world’s largest exporter of refined petroleum products like gasoline and diesel.

The discount of WTI to Brent, which expanded to $23.18 a barrel on Feb. 8, settled at $21.71 today. The U.S. benchmark for March delivery dropped 50 cents to $97.01 a barrel on the New York Mercantile Exchange. March Brent futures, which price more than half of the world’s oil, rose 6 cents to $118.72 on London’s ICE Futures Europe exchange.

U.S. crude imports have fallen 5.9 percent this year after a 21 percent decline last year, according to data from the EIA, the statistical arm of the Energy Department. The U.S. met 84 percent of its energy needs in the first 10 months of last year, on pace to reach the highest annual rate of self-sufficiency since 1991.

Trade Deficit

Record petroleum exports helped shrink the U.S. trade deficit in December to the smallest in almost three years. The gap narrowed 20.7 percent to $38.5 billion, the least since January 2010, the Commerce Department said Feb. 8 in Washington. The U.S. imported 223 million barrels of crude oil, the least since February 1997.

Increased output from Canada and Mexico will accelerate the trend toward North American energy independence, according to the Citigroup report. By the middle of this year, the U.S. Gulf Coast will no longer import light, sweet crude, replacing it with domestic supplies. By the end of 2014, sour Canadian crude will displace shipments from Saudi Arabia, Iraq, Kuwait, Mexico and Venezuela.

“OPEC should find it challenging to survive another 60 years, let alone another decade,” analysts led by Ed Morse, global head of commodities research at Citigroup Inc. in New York, said in the report. “The U.S. should see its role in the world as a singular superpower enhanced and prolonged.”

OPEC production fell to the lowest level in a year in January, the Paris-based International Energy Agency said today in its monthly report. Saudi Arabia, OPEC’s largest producer, reduced output in December because customers asked for less, Ibrahim al-Muhanna, an adviser to Saudi Arabian Oil Minister Ali al-Naimi, said Jan. 14.

OPEC pumped 30.34 million barrels a day in January, down 100,000 barrels from December, the IEA said today. The agency said Saudi Arabia produced 9.25 million barrels a day, up from 9.15 million in December.

January OPEC production dropped to a 15-month low in a Bloomberg survey of oil companies, producers and analysts because of a 100,000 barrels a day drop in Saudi output.

To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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