4 Min readArticle16 Aug 2023

Q&A: Why the U.S. is “Front and Center” of Global Oil Trade

At a Glance

Euan Craik, global head of oil at Argus Media, discusses oil exports and other changes that made the U.S. the key global market

Inclusion of WTI Midland crude in the Brent complex, started in May, has added to the sea change in global oil markets

From nowhere-to-be-seen to just about everywhere, the U.S. is now a leading player in global crude markets, achieved by supplying a commodity coveted by buyers all over the world, says Euan Craik, the global head of oil at Argus Media Ltd.

It’s all due to the shale oil boom and the lifting of the country’s crude export ban in 2015, which pushed the energy industry to find new markets. It’s been so successful that the WTI crude oil complex is now a global price setter. “I think it says that the U.S. has very much arrived as an oil power,” said Craik.

Craik was the head of U.S. operations at price-reporting agency Argus from 2006 to 2020, which gave him a front seat view of the rapid changes in the sector. The changes began with the industry revamping its shipping and pipeline infrastructure along the U.S. Gulf coast so it could handle shipping oil out rather than taking it in.

Craik sat down for a recent chat with OpenMarkets to discuss the changes and the outlook for WTI futures, along with the evolving outlook for crude flows in international markets. Answers have been edited for brevity and clarity.

How did the lifting of the U.S. export ban affect markets back in 2015?

I witnessed the whole shale boom, and then the advent of exports. It was huge. You had the situation where oil production was just growing and growing and growing. There was no place left domestically to place it. All the refineries were running as much oil as they possibly could.

The shale boom has been a tremendous release valve for the oil industry and it enabled the continued expansion of U.S. production. Because basically there isn't anywhere to put the stuff in the U.S. anymore. So every incremental barrel really has to go on to the water.

How has the increased supply affected global oil trade?

U.S. crude has now become the baseload supply for Europe because of the situation surrounding Russia. Russian Urals crude used to be Europe's staple diet for oil. Since the Ukraine invasion, sanctions on Russia, and with self-sanctioning, it no longer is. What replaced it very, very rapidly was WTI and other U.S. crudes. You now have refineries in the UK and EU that are primarily running on U.S. oil.

Asia is another really important market. There's about a million and a half barrels a day of U.S. crude going to Asia now. Japan has been a big buyer. South Korea, in particular, has been a mainstay of demand for U.S. crude in Asia, and it's increasingly an important source of crude for China and India. Significant volumes are also going up to Canada and to Latin America. So WTI has become this global marker price for crude oil. I think that's what sets it apart from other crude oils around the world: it's got this global reach.

There isn't a corner of the world that hasn't used WTI and really isn't buying it up, apart from Russia and a few other geopolitical adversaries. Everywhere else is very much on board with it. I think it says that the U.S. has arrived as an oil power.

How would you describe the global standing of U.S. crude oil today?

Previously U.S. oil was seen as something new and exotic. Like ‘well, we'll try that out, we're not sure.’ Subsequently, maybe over the past five years, it has just really established itself as a baseload grade.

Today U.S. crude is not something you take to try out. It's not something you take if it's available. Companies are signing long term contracts to run their refineries on this stuff. They're adjusting their refineries to make it easier for them to run the oil because they know it's not going away. So I think that's what's changed: The U.S. is no longer this exotic new entrant. It's very much front and center of the oil scene.

What role does Houston, Texas play in the global export market today?

Houston is where it gets really interesting because Houston is a real market, which is why we located our WTI Houston index there. What I mean by that is that there's lots of optionality. You have the option of exporting but depending on the economics, you can ship it domestically, either by pipeline or you can put it on a barge and take it up to the northeast, or the mid continent somewhere. You can store it, put it in a tank and just wait for prices to rise. Or you can sell it to a Gulf Coast refinery.

Houston is an excellent center for price discovery. And increasingly not just for the U.S. but for the world.

"The U.S. is no longer this exotic new entrant. It's very much front and center of the global oil scene."

— Euan Craik, Argus Media

As of May, WTI Midland is included in the Brent complex of deliverable grades. Argus provides the price assessment at Midland and Houston. What’s the impact of this change?

Everything tends to track back now to WTI, particularly with its recent inclusion into the Brent benchmark. Some markets in Asia price directly in relation to Brent. Also the Dubai market, which is in many ways a derivative of Brent, is used by a lot of Asian refiners as a pricing benchmark. So you've got a situation now where WTI is setting the Brent price most of the time. And then Brent is kind of influencing pricing throughout the rest of the world. So arguably, it's WTI that is now in the driving seat. And that's a total sea change.

When I moved to the U.S. 15 years ago it was very much a kind of energy island. While it imported some oil, it wasn't very connected with the rest of the world at all. And suddenly, you've got all these wonderful interconnections, particularly on crude oil, but also in areas like refined products. And I guess that's the takeaway. It's become the key oil market in the world.

What’s the bottom line for WTI crude oil futures and the outlook for liquidity in the markets?

This sort of development is once in a generation really. I think it's the cherry on top of the cake for the shale boom and the WTI oil grade complex. One of the exciting things is that liquidity tends to beget more liquidity. So once you have a contract that works, and there's a lot of buying and selling in it, it tends to attract more participants. As the information about that market becomes more transparent, it draws in speculative investment and pension funds and the like.

So I think that's where we're starting to get to. And certainly, we're fielding calls from institutions like that who just want to understand the physical cash markets better, because it's an attractive investment for them.

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