Oil Companies Big Winners as US Becomes Net Exporter of Fuel


"The United States has become a net exporter of fuel for the first time in more than 60 years. That simple fact could drive oil company profits for at least the next decade."

The United States has become a net exporter of fuel for the first time in more than 60 years. That simple fact could drive oil company profits for at least the next decade.

It's also another sign of dramatic shifts in the energy industry, with consumption declining in the United States and rising in emerging economies.

The United States exported 98 million barrels (MMbbl) more of fuel than it imported in the first 10 months of 2011. Just a few years ago, in 2005, the country imported almost 900 MMbbl of fuel.

"It looks like a trend that could stay in place for the rest of the decade," Dave Ernsberger, global director of oil at Platts, told The Wall Street Journal. "The conventional wisdom is that U.S. is this giant black hole sucking in energy from around the world. This changes that dynamic."

The United States is still the world's largest importer of crude oil, however—although even U.S. oil imports have dropped by 10% since 2006.

Actually, that's one of the reasons the United States has become a net exporter of fuel. New sources of domestic oil from the shale fields in North Dakota and Texas, as well as Canada's Athabasca oil sands, have made more crude available to U.S. refining companies.

At the same time, the weak economy, high gas prices, and government mandates to use ethanol blends have caused annual U.S. fuel consumption to fall every year since 2007.

Meanwhile, demand has been rapidly rising in emerging markets. For instance, Brazil, which exported fuel to the United States as recently as 2006, now imports U.S.-made fuel at the rate of 106,000 barrels a day. Singapore's fuel imports from the United States have quadrupled over the past five years.

Such widespread overseas demand for fuel has presented a juicy opportunity for U.S. refining companies, such as Exxon Mobil Corp (NYSE:XOM), Valero Energy Corp. (NYSE:VLO), and Marathon Petroleum Corp. (NYSE:MPC).

"International demand, particularly in the developing markets, has been the key driver for growth in 2011 and helped to elevate the margins to the levels we have seen so far this year," Ashley Smith, Valero's vice president for investor relations, said during an earnings conference call. "Our cost-efficient refining portfolio will continue to take advantage of both domestic and international opportunities available in the marketplace."

Oil companies clearly expect this trend to continue, because at least two have planned expansions of Gulf refinery capacity this year. Motiva Enterprises LLC, a joint venture between Royal Dutch Shell PLC (NYSE ADR:RDS.A, RDS.B) and Saudi Arabian Oil Co., expects to complete an expansion of its facility in Port Arthur, Texas, while Kinder Morgan Energy Partners LP (NYSE:KMP) and TransMontaigne Partners LP (NYSE:TLP) are working on a new terminal in Houston.

"Unless there is a recession around the world, we're going to be exporting for quite some time," Mike Loya, head of Americas for Swiss energy-trading firm Vitol Group, told The Wall Street Journal.

Of course, the exporting of fuel is also a factor in keeping gasoline prices high in the United States, along with the larger issue that the world is using all the oil it produces.

That has pushed the price of crude oil itself much higher. A barrel of oil cost $26 a decade ago; today it's over $100/bbl.

So, while having the United States become a net exporter of fuel may seem like good news for everybody, the only real beneficiaries have been the oil companies.

Still, that can mean an opportunity for investors as well. Investing in oil majors and exchange-traded funds are one way to go, but if you really want to know the companies poised to come out ahead, sign up for the Oil & Energy Investor—the free newsletter run by renowned expert and global energy advisor Dr. Kent Moors.

David Zeiler, Money Morning

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