US crude oil production may reach 11.6 mn b/d by 2016 from 9.1 mn b/d in 2012 and on the other hand,foreign crude oil imports have fallen to 8 mn b/d, from an average of 10 mn b/d in 2007, stated global energy weekly published by Bank of America Merrill Lynch. Given high profitability, producers have every incentive to keep on drilling even at discounted WTI prices against such fast-paced domestic output growth.
The decline in imports has almost exclusively been in light crude oil into the Gulf Coast. Rising volumes of light crude from Texas and North Dakota steadily displaced the need for seaborne imports of similar quality from places like Nigeria and Angola.
Just two years ago, light crude made up about 20% of total US crude oil imports compared to 15% currently.
With transportation infrastructure now expanding significantly, more and more of these domestic light crude will travel to the major refining centres around the country, particularly the Gulf Coast.
By the end of this year, light sweet imports in PADD 3 to fall towards zero, from 0.5 mn b/d currently, as domestic output fully displaces light imports.
Rising unconventional oil supply could then push light crudes across the entire country into oversupply as domestic refiners cannot soak up all the new volumes. Light sweet grades such as LLS will likely start to decouple from Brent through 2013, with spreads to WTI tightening.
But even if light crudes compete with heavier grades, refiners may not be able to fully displace heavy crude imports, in the Bank's view.
The energy weekly from the Bank estimates that running light crude through complex refineries could restrict throughput by 20% to as much as 50%.
Further, if refiners blend domestic light supplies with heavy imported grades, they will likely produce too many light ends and not enough distillates.
Source: Bank of America Merrill Lynch