The U.S. energy system has helped mitigate the shock loss of oil and LNG supply from the Middle East when the Strait of Hormuz closed to traffic and sent refiners and gas importers worldwide scrambling for alternative supply.
The record American crude oil production and huge natural gas production and rising LNG exports were decades in the making, during which companies invested billions of dollars every year to increase oil, natural gas, and fuel supply, the American Petroleum Institute (API) said in an analysis this week.
But the role of “the world’s energy stabilizer”, as API put it in its article, comes at a cost for the U.S. energy system. America’s inventories of crude oil and petroleum products have slumped below the five-year average for this time of year, leaving narrow margins of error in the production, refining, and export systems.
The disruption caused by the Iran war hasn’t gone away, but the record U.S. oil output and fuel exports have kept crude oil prices in check for most of the past five months, alongside perpetual market hopes that a resolution of the conflict is imminent.
“Markets remain tight, inventories are low and uncertainty around the Strait of Hormuz and other key shipping lanes persists. Yet, America’s energy system has helped cushion what could have been a much more severe shock,” API said.
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Since the shale revolution began, the U.S. oil and natural gas industry has invested about $150 billion every year in oil and natural gas upstream production alone, according to API’s estimates. Those investments, adding to billions more poured in pipelines, export terminals, and other critical infrastructure, fundamentally changed America’s role in global energy markets, the oil lobby says.
The U.S. role has indeed changed, with record crude oil production and exports, and record exports of fuels in recent months as the world is reeling from the crisis triggered by the war in Iran and the closure of the Strait of Hormuz.
The record-high exports are naturally depleting U.S. inventories even as refineries run at very high utilization rates. This tightens the domestic market, leaving it vulnerable to a sudden supply disruption from a hurricane or a refinery stoppage. Middle distillate inventories in the United States are now 12% below the five-year average, according to the latest EIA petroleum status report.
Domestic gasoline and diesel prices are much higher than they were before the war. Due to the crude price surge on international markets, the national average gasoline price is now $4 per gallon, about $1 higher than at the end of February before the U.S. and Israel started bombing Iran and nearly $0.90 higher than at this time last year.