Hey, does the US really import oil from Russia? Not really
Updated: Mar 9, 2022
… so we can ban it easily. Makes me feel a little better anyway, but wont affect the market.
I have heard so much noise about oil the last week, I just can’t stand it anymore. This isn’t hard, and here are some facts:
1. The US is a next exporter of petroleum products. There are imports and exports of crude oil, and imports and exports of refined products. The net is about zero.
2. This has nothing to do with Trump vs. Biden. Our net export position improved during the Biden Administration from the last year of the Trump Administration. The drivers of oil and natural gas production are not political and have simply been due the historic rise of US oil production by utilizing fracking and horizontal drilling, practices supported by Bush, Obama, Trump and Biden. Discussions about the XL Pipeline (Canada is STILL the US’ largest source of oil imports without this pipeline), drilling on public land (drillers drill predominantly on private lands and have plenty of land to drill on), etc. indicate a lack of knowledge. The US produced LOTS of oil in 2019, then COVID hit, and producers could not cut production enough globally: demand and therefore production collapsed in 2020 and recovered strongly during 2021 and into 2022. US oil production is currently forecast to exceed the 2019 annual rate right about now – and this was before Ukraine, etc.
3. We don’t import much crude from Russia – about 3% in 2021, the lowest level since 2017. Russian oil imports have reduced since the beginning of the Biden Administration, again due to market forces. Many US refineries were designed to burn heavy oil which they purchased from Venezuela. Russian oil looks a lot like Venezuelan oil. We banned Venezuelan oil in 2019, and import a little Russian oil. The market at work …
4. Russia produces a lot of oil – the US produces more.
Russia is a major oil producer globally. Whereas, the US can cut all imports from Russia, Russia remains a globally very important producer. Of course, Russia knows this perfectly well. The world has tools such as increasing production in the US and other producing regions but increasing global oil production to offset Russian global exports is no easy task. Encouraging renewables helps over time as well.
Buyers are not buying Russian oil as they did a week ago – this is due to difficulties imposed by financial sanctions and a preference for non-Russian oil given the political backdrop. The global market for oil is interconnected. Oil in West Texas (WTI) is the same price as oil in the UK (Brent) adjusted for quality and transportation costs (more or less). Even the possibility that the world loses its second largest oil producer, and global oil prices go up, US prices go up REGARDLESS OF THE FACT THAT THE US IS A NET EXPORTER, and we pay more at the pump. It’s just that simple.
5. Happy to discuss Euro/Asian natural gas vs. US gas, but its more complex, lot more words but pretty much the same story anyway: Russia is important producer of natural gas to Europe by pipeline mostly. Europe more or less needs Russian natural gas for power production, heating, and industrial uses. Thankfully, US gas is most insulated due to our large supplies. This also is an equation with no obvious solution. More European coal and renewable production helps. But investment is needed to get more LNG to Europe so this doesn't happen again.
6. Other impacts to wheat, fertilizer, corn, steel …. What a mess.
7. What to do? Just some ideas:
a. Release some petrolium from inventory. The US government has large reserves in the SPR.
b. Replace released oil with oil bought forward from producers giving them price certanty on expanding. Drillers dont want to expand - which will be expensive, just to see prices crash and them holding the bag.
c. Figure out how to create emergency rules to permit a few US LNG projects ASAP. Like in weeks not years.
d.. Enact the renewable legistation that is stuck in Congress.
e. The US government is a master manager of financial markets - it also has huge influcnce in the global oil and natural gas markets.