Crude oil demand in the United States has fallen off as production has increased. The falloff is attributed to increased fuel efficiency in American autos and increased ethanol production. China is poised to take up the slack and claim the title of the world's largest net oil importer by the end of this year as oil production there falls short.
Total annual U.S. crude production is expected to rise 28% between 2011 and 2014 to an estimated 13 million barrels per day. The increased production will come from shale oil, tight oil and deepwater plays in the Gulf of Mexico. Meanwhile, China's use of liquid fuels is expected to rise 13% during the same period while growth in Chinese oil production increases at a much lower rate of just 6%.
The gap between between net oil imports is expected to widen as China sees declining production in the face of increased demand while the U.S. notes the opposite -- a decline in consumption and increased production.
The trend, while encouraging for U.S. oil exporters is another nod to WTI pricing set in the global market, rather than here at home. Increased Chinese demand may hold WTI pricing at the upside and keep the spread between WTI and Brent narrow. This will do nothing to lower fuel prices, and in the minds of exporters, oil is cheap if it is below Brent pricing -- even just a few dollars per barrel.
Increased sendouts of American crude to China will lend a market to U.S. crude, but the accompanying pricetag may price U.S. light sweet crude at the high end for domestic refiners, signaling higher fuel prices ahead.