Russia’s attack on Ukraine has roiled energy markets, pU.S.hing crude oil prices upward from already high levels. And no wonder, as RU.S.sia is one of the world’s top producers and exporters of crude oil and petroleum products. RU.S.sia has consistently been the second largest single-country producer of crude oil in recent years, providing over 13% of the world’s crude oil supply. The U.S. leads the way, supplying fully 15% of the world’s crude oil in 2019, 14.8% in 2020, and 14.5% in 2021. Production from Saudi Arabia is a close third, comprising 12-13% of global production.
Incredibly, Texas would be fourth on that list, providing over 6% of global crude oil production, outproducing Canada, and all OPEC countries other than Saudi Arabia. Texas produces over 43% of the total United States crude oil, a number that is likely to increase in 2022. And yet more incredibly, the Permian Basin of Texas and New Mexico, were it a country, would be fourth on that list with Texas in fifth place. In early 2022, the Permian Basin is producing nearly 6.5% of the world’s crude oil and comprises 45% of U.S. total crude oil production.
Because Russia is a much smaller economy than the U.S., it does not need nearly all the crude oil and petroleum products it produces, and thus. is a major exporter. The potential threat to these production and export volumes because of the action they have taken in Ukraine is what is causing prices to increase this week. On the day of the invasion, crude oil prices spiked upward by over $8 per barrel during the day but then rapidly retreated to pre-invasion levels.
Crude oil prices are set globally, so any significant shrinking of the global pool of crude oil would naturally cause prices to rise. And that is why West Texas Intermediate crude oil, the U.S. pricing benchmark, has increased by roughly the same amount and percentage as the international Brent pricing benchmark, even though WTI is presently about $3/bbl lower than Brent. The global nature of crude oil pricing is also why the U.S. benchmark WTI price has risen even though imports of RU.S.sian crude oil into the United States are relatively small and declining in recent months.
Imports (and exports), consumption, and production are often measured in terms of simply raw crude oil, and all petroleum liquids and products, which includes raw crude oil.
In terms of just crude oil, for the last 20 years or so Russian crude oil has accounted for only about 1.4% of all net crude oil imports into the United States. That number bounced around a bit but didn’t change appreciably until 2021 when the numbers began to increase. By August 2021, Russian crude oil imports had increased to 5% of U.S. net crude oil imports. Since then, however, the volumes have declined, falling to as low as 90,000 barrels per day in December 2021, only about 1.4% of total U.S. net crude oil imports.
By contrast, crude oil imports into the U.S. from Canada, our most prolific and reliable external supplier of crude oil, accounted for over 60% of total net U.S. crude oil imports in 2020 and 2021, and the numbers have been steadily increasing over the last 20 years. Add U.S. production and we were very close to North American energy independence before COVID and opposition to U.S. production came along.
What has been steadily declining over the last 20 years is imports from all OPEC countries. As recently as 2008 crude oil imports from OPEC comprised over 55% of all U.S. net crude oil imports (it was a whopping 85% in the 1970s). That number began to fall sharply with the dramatic expansion of U.S. domestically produced crude oil and averaged 13% in 2021.
The biggest game changer for U.S. and global crude oil markets was the explosion of U.S. domestic production led by Texas. From 2008 until late 2019 when crude oil production peaked in advance of COVID, U.S. crude oil production expanded by about 2.5 times, or over 150% from about 5 million barrels per day to just under 13 million barrels per day. At the same time, Texas production more than quintupled, from about 1 million barrels per day to 5.4 million barrels per day in early 2020. Permian Basin crude oil production increased nearly six-fold during the same time.
U.S., Texas, and Permian production all dropped sharply because of COVID in 2020. Permian Basin production has now fully recovered and is presently producing a jaw-dropping 5.2 million barrels per day and climbing in early 2022. Texas statewide production is just now surpassing 5 million bpd and is on track to recover its COVID-related production losses and enter into record territory sometime in the second half of 2022. U.S. production is not expected to reach pre-pandemic levels at any point in 2022. This means Permian production (most of which is in Texas) is growing faster than Texas production, which in turn is growing faster than U.S. production.
That makes Texas and the Permian “ground zero” for near-term additions to global supply. Simply put, crude oil prices would be much higher than they are today absent the fantastic U.S. supply growth over the last 12 years; however, prices would be significantly lower than they are if we were producing at record pre-pandemic levels. At present, the U.S. is about 1.3 million barrels per day short of that pinnacle.
Given restrictions on oil and gas production on federal property and blue state hostility toward the industry in several producing states, Texas, which has neither of these problems, is uniquely poised to deliver much-needed supply growth to meet U.S. needs and quell the jitters in global crude oil markets. How will petroleum energy markets ultimately be affected by Russia’s actions? No one knows. Will OPEC respond to higher prices and open the taps or not? There has been zero indication this will occur, and these outcomes are outside our control. The U.S. can and should take this opportunity to come to the rescue of our citizens and our global neighbors by raising production rapidly and pushing prices downward. Supply growth has always been the solution to high prices in the past and will be again.
President Biden and Congress need to get out of the way and let the Texas and U.S. oil and gas industry get to work and once again perform the market miracles as it has time and time again in the past.
*Note – the production data referenced in the article above is crude oil only, not all petroleum liquids and products
About the author: Karr Ingham is a petroleum economist and Executive Vice President of the Texas Alliance of Energy Producers.