"If the China demand pull fails to materialize, for political reasons, quality mismatch or otherwise, U.S. exports will likely have to muscle their way into the global refining system, likely via price discounts," Diwan said.
U.S. shale crude is already selling at a big discount to Brent, the international oil benchmark. West Texas Intermediate sells nearly $10 under Brent. And some of the lighter grades from the Permian, including a new stream called West Texas Light, are seeing even wider discounts.
Finding buyers for the light Permian crude isn’t the only obstacle. Pipelines and ports have become the biggest bottleneck in U.S. oil exports, with traders engineering logistically complex chains combining railways, trucks, pipelines, barges, and ship-to-ship transfers to get crude out of the country. Several ventures are aiming to build new facilities to allow exports via supertankers, which need deepwater ports.
The export surge started in late 2015 when Washington lifted a 40-year ban on most oil sales overseas, imposed in the aftermath the 1973-74 oil embargo by the Arab members of the Organization of Petroleum Exporting Countries.
Although the Permian isn’t growing as fast as last year, oil traders and executives still anticipate that America will add another million barrels a day this year to its production, with the bulk coming in the second half. The current slowdown, which some executives jokingly call a "fracking holiday," is the direct result of shareholder demands for higher returns and less growth, and lower oil prices in late 2018 and early 2019. But the Permian is likely to re-accelerate in the second half of this year when new pipelines open.
If the forecast proves correct, U.S. crude production will surpass 13 million barrels a day by December, up from 11.8 million barrels a day at the end of last year and well above the previous all-time high set in 1970.
"It’s going to be less than if people were able to spend unconstrained, but there’s going to be growth, lots of it," said Osmar Abib, chairman of global energy at Credit Suisse Group AG.
This article provided by Bloomberg News.