PARIS -- U.S. oil production is booming and is forecast to top that of heavyweight Saudi Arabia and rival Russia this year, a global energy agency said Friday.
The International Energy Agency said in its monthly market report that U.S. oil production, which has already risen to its highest level in nearly 50 years, will push past 10 million barrels a day this year as higher prices entice more producers to start pumping.
"This year promises to be a record-setting one for the U.S.," it said.
The price of crude has risen about 50 percent since June, with the U.S. benchmark now trading around $63 a barrel, on evidence of strong global economic growth and a pact among OPEC countries and Russia to limit their production.
The OPEC-Russia deal worked for them: As prices rose they made more money despite pumping less crude, the International Energy Agency said. Russia is estimated to have earned an extra $117 million a day and Saudi Arabia $100 million daily by limiting output and nudging up prices.
But the higher prices also drew U.S. producers back, particularly in shale oil, which requires higher prices in order to break even.
U.S. production rose last year to its highest since 1970 and is expected to keep growing, assuming OPEC and Russia don't decide to increase their own production -- a decision of which there is no sign, the energy agency said.
Even the hurricanes of last year didn't hinder the U.S. oil production boom.
For now, the extra crude from the U.S. is meeting growing demand as the world economy expands at a strong pace.
Global demand for oil is forecast to grow by 1.3 million barrels a day, the same as the year before. It's not growing faster because some consumers are reducing spending on oil because of the higher prices and switching to other types of energy, like natural gas.
REFINERS BULLISH
Meanwhile, U.S. refiners are off to a strong start this year, even as competitors elsewhere are hitting harder times.
Independent refiners are poised to cash in on President Donald Trump's U.S. tax overhaul. Oil market fundamentals are also looking bright. Gulf Coast refiners ran at record-high levels in the last week of December. The party is set to continue as planned shutdowns will be 45 percent lower this quarter from a year ago, according to data compiled by Bloomberg.
Analysts are bullish with good reason. While some Mediterranean refiners are taking losses on each barrel of crude they process and Asian fuel producers face more competition from China, margins at some Midwest plants reached $40 a barrel in late December. Gasoline and diesel are leaving Valero Energy Corp. and Marathon Petroleum Corp.'s Gulf Coast plants at a record pace as Mexico and Brazil seek increasing amounts of fuel.
"Refiners have a few factors working in their favor right now," said Sam Margolin, lead analyst at Cowen & Co. "Economic indicators point to strong gasoline and diesel demand in 2018. Secondly, the rally in oil prices could be helpful to U.S. refiners."
"Unlike other areas of energy, refiners not only have U.S.-centric operations but are largely in the black and cash taxpayers," which will strengthen earnings once policy changes, said Blake Fernandez, an analyst at Scotia Howard Weil.
U.S. refiners have the advantage of not only close proximity to abundant crude supply from Texas, North Dakota and Alberta, but cheaper supplies of natural gas and hydrogen that are vital to running their plants.
"If you wrap that together, you get a margin in the U.S. which is quite a bit better than almost all the other large manufacturing centers in the world," Dan Romasko, chief executive officer of Motiva Enterprises, said Thursday at the Argus Americas Crude Summit in Houston.
Refiners' margins for producing diesel are now outperforming gasoline by more than $10 a barrel, reviving a typical seasonal pattern that didn't show up the past two winters, Bank of America Merrill Lynch said in a research note. Refiners maximized their diesel production at the end of last year, boosting output of the heavy-duty distillate fuels to a record 5.6 million barrels a day.
Still, today's high times for refiners may be hiding tougher days ahead. Greater competition from refiners from China to Saudi Arabia threatens U.S. hegemony in the Latin American fuel market. Record U.S. operating rates may result in a fresh glut of products, as its biggest customer, Mexico, produces more of its own fuel.
Margins in Europe have dropped, and even turned negative at some less-sophisticated plants in the Mediterranean, according to Oil Analytics data. In Asia, China's fuel exports are set to soar this year, according to the nation's biggest energy producer.
U.S. refiners' opportunity to keep expanding production depends largely on Latin American demand. In 2017, Brazil and Mexico were first in line to purchase American-made diesel, helping boost July exports to a record-high 1.7 million barrels a day.
Petroleos Mexicanos is counting on buying less diesel in 2018. It plans to run its accident-prone refining complexes 27 percent harder this year. But Brazil's appetite is only growing, according to Sam Alderson, an oil analyst at Energy Aspects.
"We expect margins to remain relatively healthy through the first half of the year," he said. "We're far from short of diesel demand given the current cold snap, robust freight market and strengthening external demand in places such as Brazil."
Information for this article was contributed by The Associated Press and by Bloomberg News.
Business on 01/20/2018