It only makes sense that as the United States becomes increasingly self-sufficient for its own oil supply needs, someone who exports oil to the U.S. market has to pay the price. But, it appears, that someone isn't Canada. It's OPEC that's taking America's shale oil boom on the chin.
In a research note Monday, National Bank chief economist Stéfane Marion noted that according to U.S. government data, Canada's exports of crude oil and products hit a record 3.4 million barrels a day in the first quarter of this year – even as surging U.S. domestic oil production reached its highest level in 25 years. While U.S. oil production has surged almost 50 per cent since the middle of 2011, Canada's shipments into the U.S. have risen by more than 30 per cent.
But the same can't be said for the Organization of Petroleum Exporting Countries; the oil cartel is losing its once-powerful grip on the U.S. energy market. In the past six years, OPEC's exports to the United States have declined by nearly 50 per cent; more than half of that has occurred since the U.S. shale-oil production boom took hold in earnest in mid-2011.
Indeed, as Mr. Marion noted, Canada has surpassed OPEC as the biggest exporter of crude oil and petroleum products to the United States. If you just looked at crude, OPEC is still bigger – yet OPEC's crude shipments have fallen by more than 40 per cent since mid-2011 – while Canada's have risen more than 40 per cent.
This must be music to the ears of oil producers and certain political forces on both sides of the Canada-U.S. border, who have long talked about reducing U.S. reliance on OPEC as an energy supplier, citing concerns about the reliability, political stability and human rights records of many members of the cartel. Indeed, given the long-term unknowns surrounding the sustainability of U.S. shale oil production, Canada may still be the most reliable and stable long-term oil source for the U.S. market.
But more to the immediate point, as the Bank of Canada noted in its quarterly Monetary Policy Report last week, the shale-oil boom hasn't much hurt U.S. refineries' appetite for crude from Canada's oil sands, nor should it, at least over the relatively near term. Shale oil is a light grade, while many major U.S. Gulf Coast refineries are set up for heavier grades; as Mexican and Venezuelan production of heavier-grade oil has gone into decline over the past decade, Alberta oil sands heavy crude has filled the void (which, in case we've lost it in all the political rhetoric, was the logic behind the Keystone XL pipeline project in the first place). The result has been that as U.S. energy demand recovers along with the country's economic growth, the demand for Canadian oil is growing in parallel with shale oil – while the lighter grades from OPEC are the ones being left out.
The latest U.S. oil numbers also lend support to a recent argument, put forth by CIBC chief economist Avery Shenfeld, that Statistics Canada's export data have been understating the strength of Canadian oil exports to the United States. In short, the energy sector may be more of a leader in Canada's export recovery than we thought. And with the U.S. economy expected to accelerate this year and next, there's good reason to expect this demand to be a key driver of Canada's long-awaited export recovery over that horizon.
Follow David Parkinson on Twitter at @ParkinsonGlobe.
David Parkinson