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Boler Business Once again, the U.S. is a big importer of oil.

April 7th, 2016

 

In the first three months of 2016 and since the U.S. lifted its forty-year ban on crude oil exports, U.S. crude shipments to foreign buyers have stalled.

 

Additionally, imports into the U.S. jumped to a three-year high in what looks to be a reversal of a year-long decline in the amount of foreign crude brought into the American market according to Bloomberg.

 

As of March 25, the monthly average of imports was running at 7.9 million barrels a day, which is 9.8 percent higher than the year 2015 according to Bloomberg.

 

U.S. producers no longer appreciate a steep price advantage over foreign rivals in selling to domestic oil or other natural resource producers.

 

Bloomberg reported that production has fallen by about 600,000 barrels a day from its peak of 9.6 million in 2015.

 

Now refineries are buying foreign oil to replace the lost U.S. output and are storing much of the less-expensive imported oil to sell when prices rise in the near future.

 

One of the biggest winners this year is Nigeria, who regained lost market share. Imports from Nigeria surged to 559,000 barrels a day in mid-March, compared with an average of 52,000 for all of 2015 reported Bloomberg.

 

The irony of the oil boom is that it came just as U.S. refiners were spending billions to process heavy oil.

 

Bloomberg discovered a linkage between freeing up the U.S. barrels and replacing them with foreign crude that U.S. refiners are better suited to run and manage.

 

The U.S. is hoarding a significant amount of the imported oil. Since March 25, the U.S. commercial crude inventories reached 534 million barrels.

 

This was near the all-time high in 1929, when U.S. commercial storage hit 545 million barrels, as huge oil finds coincided with the beginning of the Great Depression back in 1929 according to Bloomberg.

 

Today, with oil so cheap, producers and traders are choosing to wait for prices to rise instead of selling, especially with the futures market signaling that oil prices will continue to rise.

 

Traders can lock in those prices by taking out a contract for delivery a few months down the road or in a year in advance. Putting away oil is one of the few risk-free plays in the world right now, especially in this current situation when oil prices are as low as they are.

 

As of September 2015, the U.S. had 551 million barrels of working oil-storage capacity, 50 million more than it did two years before, according to Bloomberg.

 

As long as futures prices remain higher than current ones, the incentive will remain to pump oil and store it for a future time. The U.S. is stuck in a strange pattern where the higher its inventories go, the more downward pressure that puts on quarter prices, which then increases the incentive to store it.

 

The only way to break that cycle is for interest rates to rise, resulting in increases in the financing costs to build storage tanks. As long as money is cheap, it would beneficial to have the incentive to build storage tanks in the U.S., rather than have the public use up all of the oil they have been importing within a short period of time.

 

Economists are predicting that by storing oil in tanks across the U.S. it may allow effects from a predicted recession in the next few months to lessen and hopefully save the U.S. millions in payments.