With supportive policies, U.S. economic and energy security remains in our grasp.
Here are three key takeaways from API's monthly statistical report based on U.S. petroleum primary market data through January 2022:
- The year began with the strongest U.S. petroleum demand for the month of January on record since 1963.
- American crude oil production was relatively flat and down 1.3 million barrels per day (mb/d) compared with its highest levels in late 2019 and early 2020.
- The U.S. was a petroleum net importer of 1.6 mb/d, including crude oil and refined products. By contrast, the U.S. was a petroleum net exporter of 0.8 mb/d in January 2021.
With demand having outpaced supply and increased U.S. and European import dependence, it could be no coincidence that the highest global oil prices since 2014 exposed an economic vulnerability to which the Russian invasion of Ukraine added additional pressures.
For the past few years, Russia has been the world's No. 2 oil and natural gas producer as well as the second largest exporter of refined petroleum products after the U.S., per the International Energy Agency.
As U.S. energy exports grew, global markets came to rely on U.S. oil and natural gas production growth that helped keep downward pressure on consumer prices despite demand that grew along with the global economy.
However, the U.S.'s return to being a petroleum net importer in 2021 - and projection to be an even larger net importer in 2022 per EIA - likely added to Russia's leverage.
To be clear, U.S. oil and natural gas production potential remains strong, but the pandemic's aftereffects - workforce, supply chain and financial issues plus adverse energy policies - have muted the historical responsiveness of drilling to recent prices.
Specifically, U.S. oil drilling has accelerated and averaged an increase of four rigs per week over the first nine weeks of 2022. This is a positive sign for supply resiliency, yet oil drilling as of March 4 was down by 38 percent compared with the same week in 2019, which preceded the highest U.S. crude oil production that came later that year. There could be some detriment now to productivity when starting new rig and completion crews.
Consequently, it could take time for supply to catch up with demand that's grown along with the economy. When most of the global production could take significant time to find and develop, it's difficult for supply to catch up once it has fallen behind demand.
Meanwhile, weak production growth has increased the reliance on existing inventories, which for U.S. crude oil fell to its lowest level for January since 2015. Domestic crude oil production that was down from its highest levels by 1.3 mb/d (or 10 percent) has been the difference between America contributing barrels to global markets as an oil exporter and, alternatively, U.S. energy dependence and importing barrels from global markets.
In particular, the U.S. was a petroleum net importer of 1.6 mb/d in January 2022, including crude oil and refined products. By contrast, the U.S. was a petroleum net exporter of 0.8 mb/d in January 2021. The net swing of 2.4 mb/d between January 2021 and January 2022 equates to 2.4 percent of global oil demand as estimated by EIA. And 2.4 percent is roughly twice the annual average growth rate of global oil demand over the past 20 years.
All of this is to say that what might seem like a relatively small, 1.3 mb/d difference in American oil production has been a tectonic shift from a measure of energy independence to greater reliance on global markets.
It's also corresponded with domestic oil prices that, to attract the needed imports, rose toward elevated international levels and contributed to the highest consumer price inflation in 40 years.
Recent events are a reminder that U.S. economic and energy security is something that has been - and with supportive energy policies realistically could remain - within our grasp.
For more information, contact Dr. Foreman at ForemanR@api.org or (202) 682-8530.
