We’ve all seen those memes floating in and around social media: Anywhere there’s oil, there’s the U.S. But it begs the question-just, why does the U.S. want so much of it? I mean, The United States is one of the O.G. producers. We might even be wondering about the necessity of America importing crude oil from other nations.
But why does the US import oil? Well, that’s one question we will answer you today.
Based on statistics, America has surpassed Saudi Arabia and Russia to take the top spot in the world for crude oil production. However, the United States continues importing oil, which is almost 7 million barrels of crude oil every day, leading some to wonder whether the export prohibition on American crude oil should be lifted.
Oil production in the U.S.
As of 2016, the United States was the world’s top producer, with a daily output of 14,837,640 barrels, producing an amount equal to 15.4% of its total proven reserves (as of 2016).
Refineries produced about 18.375 million barrels of petroleum products in the United States in 2020. There are 11.283 million barrels of crude oil and 5.175 million barrels of natural gas liquids, and the remaining barrels are made up of other petroleum products.
Crude oil makes up the majority of American imports of petroleum. Depending on the year, 70 and 80 percent of all petroleum imports. Refined goods have historically accounted for the vast majority of U.S. petroleum exports due to the nation’s enormous refining capacity, particularly close to important ports on the Gulf Coast.
Petroleum, a general word that encompasses crude oil and refined petroleum products like gasoline, diesel, jet fuel, and other goods, is imported and exported by the United States in varying amounts based on price and demand.
The United States is a net importer of petroleum since it imports foreign oil more than it exports. In 2017 alone, 19% of the nation’s petroleum demand was met by foreign oil imports. In the third quarter of 2018, over 25% of all U.S. petroleum was made up of crude oil exports.
So what’s the answer?
Quite simply, the first answer to that is Economics. When it is advantageous economically, goods are often both imported and exported. The availability and demand for a product in that region and the transportation cost are frequently considered when deciding whether to import or export a good.
For instance, even though we buy 635,000 metric tonnes of corn each year, the United States is the world’s largest producer and exporter of corn. According to data from the Massachusetts Institute of Technology, additional goods frequently imported and exported include petroleum products, automobiles, computers, and aircraft parts.
#1 Economics and part chemistry work together to cause that. Simple economics dictate that imported oil is frequently less expensive than domestically produced petroleum, even after shipping costs are considered. This is due to how much cheaper it is in certain other nations to take the oil from the earth, or what the oil industry refers to as “lifting expenses.” Several variables contribute to that, in turn.
#2 Not all crude oil is created equal. It ranges from light to heavy, high to low sulfur and sour to sweet. Light oil currently makes up most of the oil produced in the U.S., And not every refinery is the same. Many Gulf Coast and Midwest refineries were built to process heavy crude from Mexico, Venezuela, and Canada. Refineries would have to function less efficiently, pay less for their oil feedstock, or invest a lot in new infrastructure if they used light domestic crude.
#3 There is a tonne of light oil resources in the United States. The light crude’s output already exceeds the refineries’ capacity to process it at some times of the year. This situation is anticipated to deteriorate as more oil is produced. According to experts, the United States could purchase heavy oil to refine domestically and export light oil to refineries built up to process it elsewhere.
Only a portion of American production would be used for exports. Due to the $2 to $6 per barrel cost of shipping American oil abroad, refiners would still have access to all the oil they can process and a competitive edge over refiners from other countries.
A product’s supply and demand in a certain location and transportation costs are frequently considered when deciding whether to import or export a good. When it makes economic sense, products are often both imported and exported.
According to data from the Massachusetts Institute of Technology, other goods frequently imported and exported include petroleum, cars, computers, and aircraft parts.
Crude Oil Production
The Earth’s crust has a variety of porous rock formations that are home to liquid petroleum, which can be recovered and used to make chemical goods or burnt as fuel. This is called crude oil.
Although the United States produces enough oil to suit its requirements, it is the wrong kind of oil. Weight and sweetness are the two primary criteria used to grade crude. How simple it is to refine or separate the oil using specialized refining equipment into its useful constituent parts, such as gasoline, jet fuel, and diesel, depends on the weight of the raw material.
According to Professor Robert Kaufmann of Boston University’s Earth and Environment Department, The United States imports oil because it uses more oil products than it produces (18 million vs. 20 million barrels per day); this disparity is between two and three million barrels per day, is substantially less than in past years.
According to Kaufmann, the price Americans pay for a barrel of crude oil is not only determined by the amount of oil imported into the United States. He says that the amount of crude oil the United States imports have little to no impact on our price. Crude oil is sold on a single global market.
All crude oils are priced at that global price, plus or minus a few dollars depending on shipping expenses and oil quality. The cost of oil would be paid by American customers even if the country produced all the fat it required.
Identification of the Right Crude Oil
Two questions are typically asked by oil refiners when they discuss crude. First, how easily can hydrocarbons be broken up to create products like gasoline or jet fuel? How light is it? How much sulfur is present in the oil? This is called sweet crude.
Hugh Daigle, an associate professor of petroleum engineering at the University of Texas in Austin, stated that more sour, higher sulfur crudes are less expensive to buy. This is so they can be processed more slowly and use equipment designed specifically for refining. This inexpensive, domestic crude is produced, among other places, in Canada, Venezuela, and Russia.
According to Richard Sweeney, an assistant professor of economics at Boston College, many refineries made a very costly wager to invest in this machinery that would enable them to reduce their input costs by processing, you know, lower-quality crude.
Environmental restrictions and other laws contribute to oil prices. Still, they are by no means the only factors that impact costs, despite what some people believe.
Costs of labor and other expenses, as well as land and lease prices, play a significant role. Additionally, many nations—Russia, with their Russian oil being one of them—view oil exports as a crucial geopolitical and strategic tool. These countries make compromises in those situations to ensure that their oil is sold for a profit.
Vladimir Putin is often accused of attempting to weaponize the energy industry. Still, he and other autocrats and violators of human rights have been doing this for years to get their client countries, including the United States, to ignore who they are and what they do.
Oil and Other Countries
About 39 percent of the 7 million barrels of crude oil that are imported into the United States each day, according to the U.S. Energy Information Administration, come from Canada, and about 11% from Mexico, meaning that our closest neighbors and most dependable allies account for half of our daily imports.
Only a few nations supply the remaining 50% (or about 3.5 million barrels), including Venezuela, Brazil, Iraq, Saudi Arabia, and Colombia.
To be true, the U.S. refining industry is processing domestic light sweet crude more than it used to, but it is still far from being in the position where the nation can cease heavier, foreign sour oil imports.
The ultimate result: Since 2020, the United States has been a net exporter of oil, sending a large amount of its light sweet crude to Europe and Asia, where refineries are set up to handle the type of oil pouring out of West Texas and North Dakota.
I believe now you know how the world of oil goes on and about with the US.