Stratas Advisors is a Hart Energy company. Greg Haas is manager of research.

Given the oil price rout, can crude oil exports save 2015? We acknowledge that crude and condensate exports are on the rise and that today’s lower prices should support U.S. consumption. However, despite 2015 drilling and completion expenditure cuts, Stratas Advisors sees North American crude output gains outpacing near-term growth in crude export and domestic refined products demand.

Inside U.S. borders, the oil industry has become the world’s highest growth new liquids supplier. Yet at the U.S. border, we find the most problematic bottleneck on the planet. Our policy experts see existing crude export restrictions remaining largely intact for the near term. Unless processed, segmented and documented specifically for export, existing rules direct U.S. crude and condensate mainly to Canada. While stabilized condensates are also now flowing in limited tanker runs to adventurous foreign processors, we believe they are only cautiously collecting U.S. liquids for limited test runs in their plants.

Year to date, the U.S. EIA data shows that combined field crude and condensate exports amount to less than 500,000 bbl/day. Rather than waiting for materially higher Canadian crude exports, condensate tanker runs, and potential swaps with Mexico, we believe refined product exports are and will remain the key relief valve for the U.S. oil supply overhang. Combined, daily exports of petroleum (in the form of both field or processed volumes) represent nearly half of U.S. daily crude production. That ratio will likely grow and test or best the historic peaks through the remainder of 2015.

Over the past five years, shale oil supply gains have enabled the U.S. to become a net refined product exporter.

Over the past five years, shale oil supply gains have enabled the U.S. to become a net refined product exporter. Gone are the decades of importing millions of barrels of products from refiners elsewhere. Today, smaller global refining nations that previously exported fuels out to consuming nations are facing not only heightened competition for outbound exports but also competition from incoming imports that are seeking a share of core domestic markets.

Competition is of course coming from U.S. refiners that are advantaged by enduring crude discounts and low-cost shale gas for energy-intensive refining processes. But competition also comes from several OPEC nations that have invested and started up nearly 1.4 MMbbl/d of new refining capacity in recent quarters.

Bucking the disintegration trend elsewhere, OPEC members have stealthily expanded their integration, gained a natural hedge against low crude prices, and simultaneously tightened global crude markets. These OPEC refineries are seeking to wrest share on the petroleum product market even as OPEC crude producers are trying to protect share on the crude oil market. U.S. upstream and downstream independents alike will increasingly see an integrated OPEC as their competitor.

For 2015, we expect momentum in U.S. crude production growth to continue. We also expect export restrictions will persist. While growing, crude and condensate exports and swaps from the U.S. will not be enough, in our opinion. The crude supply glut will likely not be exported away unrefined. Nor can it be refined away if those products are sent only to lackluster North American product markets. Rather, product exports will likely be the key to managing the U.S. crude supply glut.

Without a vibrant and competitive refining industry in the U.S., the “independent” upstream sector will likely see more pain from a further downward spiral in overstocked and bottlenecked U.S. crude oil markets and prices. But if U.S. refiners can export away the excess barrels effectively as products, the upstream may once again see positive gain. Independent or integrated, the U.S. industry is again all in this together.

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