Recent events have underscored the importance of the United States to the global oil market…and of global supply & demand developments for the US market.
The US remains the world’s largest oil consumer…and the largest oil producer. The US Energy Information Administration (EIA) projects that domestic oil consumption will rise slightly (+0.6%) this year to 20.1 million barrels per day (Mb/d), largely due to increasing gasoline use amid continued economic growth. US oil consumption is considerably larger than the next-largest consumer, China, where demand this year is expected to average about 16 Mb/d.
The US EIA projects that US oil production will grow much more rapidly this year, with crude oil and other petroleum liquids supply growing by a robust 1.3 Mb/d. This would be the largest supply increase of any country this year, and the largest US increase since 2019. US supply of over 19 Mb/d far outpaces that of the next largest producers, Saudi Arabia and Russia, with production of roughly 12 Mb/d and 11 Mb/d, respectively, according to the International Energy Agency.
Domestic oil production has risen robustly this year even as drilling activity has declined. Since peaking in late 2022, the domestic oil rig count has fallen by nearly 20%. In part, US oil producers have been able to sustain high productivity in their domestic operations, for example by drilling longer lateral wells. But more importantly, the momentum in domestic oil production this year has been due to the increase in drilling activity last year, when the domestic rig count rose by nearly a third as oil prices averaged over $100 per barrel. Indeed, in recent months, the momentum in domestic oil production has faded, with the US EIA reporting that crude oil production in US shale regions has stopped growing.
The strength of US oil production growth has surprised some observers, especially since domestic producers have remained under pressure from investors to exercise financial discipline and focus on returning cash to shareholders. But the relative strength of oil prices means that domestic producers have been able to increase supply AND maintain strong financial returns.
That said, most analysts expect US supply momentum to weaken significantly as this year’s drilling decline impacts production with a lag. The US EIA projects that domestic production next year will grow by 0.5 Mb/d.
With domestic supply outpacing demand this year, the US is on track to increase its net exports to the rest of the world. The US EIA reports that net oil exports will rise by 0.4 Mb/d to 1.6 Mb/d. While that figure appears modest, it masks a much larger connection between the US and the global oil market. So far this year, official data shows that the US has imported an average of 6.5 Mb/d of crude oil, while also exporting 4.1 Mb/d. The need to both import and export large volumes of crude oil is due to a mismatch between the quality of domestic crude oil supply (relatively light) and the configurations of many domestic refineries, which are designed to process heavier crude oil varieties, as well as the economics of supply across a vast continent.
Additionally, strong refining economics amid robust global demand growth has allowed US refiners to sustain high levels of operation despite relatively weak domestic demand. So far this year, the US has exported a massive 6.2 Mb/d of refined products, while also importing 2.1 Mb/d.
US oil supply increases have helped moderate global oil prices this year, but have been largely offset by production cuts from the OPEC+ group. This includes additional, voluntary cuts by Saudi Arabia and Russia, with the Saudis having recently announced that they plan to extend a voluntary 1 Mb/d cut through the end of the year.
The OPEC+ production cuts highlight the reality that the United States remains tightly connected to the global oil market: Being self-sufficient in oil is not the same as being independent. Domestic inventories of crude oil, gasoline and diesel fuel are all near the bottom of their 5-year historical ranges. (The federal government has made some minor purchases of crude oil—about 4 million barrels—for the national strategic stockpile, after having sold a massive 250 million barrels from the reserve since the beginning of last year.)
Moreover, the US economy remains vulnerable to higher oil prices. In addition to being the world’s largest oil consumer, oil remains by far the largest energy source for the US, last year accounting for 38% of total energy consumption. (Oil is also the leading energy source globally.) Volatile gasoline prices have played a large role in driving US inflation, as well as consumer and business confidence…and the approval ratings of US politicians.
That vulnerability to higher oil prices has been a key factor behind the US Administration’s efforts to rebuild its relationship with Saudi Arabia. Additionally, it plays into recent decisions to take a lax approach to enforcing the G7 price cap on Russian oil exports, as well as tolerating increased oil exports—despite ongoing sanctions—from Iran and Venezuela.
Over time, the rapid growth of electric vehicles may reduce US dependence on oil in the domestic energy mix. But for now, access to affordable, secure oil remains a cornerstone of US economic and strategic interests.
