Summary: U.S. petroleum exports are about 10% of imports. Want to increase U.S. oil supply by 10%? Stop exporting it. There's a push by some to drill in ANWR to, ostensibly, make the U.S. less dependent on foreign oil. But that won't help as long as we export oil from that region.

[Also of interest ... see what happened during The Oil Shocks of the 70s]

I was telling a group about Trade Truth #2: The Dollar & The Deficit and how the U.S. has a petroleum trade deficit. That is, petroleum imports exceed exports. However, the petroleum deficit is only about 20%, and a decreasing part of, our overall trade deficit. Nevertheless, we have high demand for oil and high prices; that has impacts.

Impact of high fuel prices: Higher fuel prices not only increase the cost of transportion, that cost ripples through the economy to increase the price of almost everything we buy, including food. But somehow government has excluded the "volatile" cost of energy and food from the "core rate of inflation" ... go figure, they seem more like the "core" to me.

Why Gas Price Increases? Increased fuel prices are blamed on oil shortages that drive up the price of a barrel of oil. A large part of that increased price of oil is due to oil speculation and the fall in the value of the dollar, but why are there shortages?

Why Oil Shortages? There's increased demand for oil due to offshoring that increases China's less-efficient use of energy. And there's evidence that shortages could be because we're either at or past "peak oil" which may have contributed to decreased imports into the U.S.; yes, the U.S. has imported less for the past two years. And it's also because the U.S. exports oil. 

What? One person in the group asked, "You mean we actually export oil?"

Good question. And the answer is: Yes! This is a seldom-mentioned fact in articles on the oil shortage.

U.S. Oil Exports: I'd plotted the oil deficit, comparing it to the total trade deficit (see at the link above), and knew it was non-trivial, but hadn't looked at exactly how much.

Note on data sources: The plotted 1996 to 2004 data is here ... after that see the FT900 data. These sources omit 2005. I have the 2005 numbers only because Dave Anderson's work prompted me to look at this issue last year.

So, taking a closer look, here's what you find.

Petroleum import & export trends

Here's the same data with the export scale on the right set at 10X magnification of the import scale on the left.

Petroleum import & export trends on two scales: right scale is 10X magnification of left scale

And here's the ratio of exports to imports.

Ratio of petroleum exports to imports

An oil shortage? It's interesting to note that the U.S. exports more oil, even as we're told that an oil shortage is responsible for increasing gasoline prices. If it's a shortage of oil that's slowing imports, one would think the U.S. wouldn't be exporting 25% more in 2007 than in 2005 (see graphs below).

Is the OPEC cartel restricting supply (the presence of a cartel assures there's no "free market" for oil) or does the U.S. oil company oligopoly purposely import less, export more and restrict refinery capacity to drive up prices? It's likely all of these; it's to their advantage to restrict supply to drive up prices (as Enron did in California).

6/14/08: See references on restricting refinery capacity added at bottom.

Imports fall? It makes some sense that the U.S. imports less oil as oil and gas prices rise; this would decrease demand due to cost, as well as decrease demand by slowing the U.S. economy. Note that a much higher price of oil in dollars means we've got to be importing, percentage-wise, a lot fewer barrels than dollars.

Economic Slowdown hasn't brought lower prices: Are oil imports to the U.S. falling because demand is falling as the economy is slowing? Normally, falling demand would decrease prices, but that's not happening. So there's more going on.

Economic Slowdown: It seems the economy is slowing at least partially because of high energy prices. Oil companies can increase prices by manipulating supply (decreasing imports and increasing exports). See the supply and demand diagrams on the dynamics in the Messing with the Market section below.

Why export more? It makes some sense that the oil oligopoly exports more as the price of oil increases. Oil companies drilling in Alaska can get more for that oil by selling it on the world market (to Japan and China).

Here are the changes since 2005 in billions and in percent.

Change since 2005 in Petroleum Imports & Exports (billions)

Change since 2005 in Petroleum Imports & Exports (%)

Drill in ANWR? So, we're told that to address oil shortages we must increase drilling in the U.S., particularly in ANWR (Artic National Wildlife Refuge). We're told this would make a significant impact. But what would actually happen? That oil would likely be exported. Increased pressure to drill in ANWR seems more about increasing oil industry profits (already higher than in the history of the world) than about supplying oil to the U.S.

Pass a law prohibiting oil exports? Go ahead, propose a law that oil from the U.S. shall not be exported (as some nations are now doing with food). Then wait for the uproar of opposition.

The basic "Invisible Hand" structure equilibrating supply & demand

Drill in Florida? Those who want to increase U.S. production are much less vocal about drilling in Florida, because Floridians don't want polluted beaches. ANWR, OK to pollute ... out of sight, out of mind; Florida, not OK.

Messing with the Market

The figure at right shows the normal feedbacks that equilibrate market supply and demand (see The Invisible Hand for an explanation).

But there's more going on as shown in the figure below.

Normally, as shown by balancing Loop B4, an increased Oil Price would decrease Economic Activity and Oil Demand, which would lower the Oil Price.

However, as shown by reinforcing Loop R3, because of Oil Oligopoly Ability to Restrict Supply, it has the motivation to reduce Oil Imports, to increase the Oil Price and Oil Company Profits. This further increases Oil Oligopoly Motivation to Restrict Supply.

Oil Supply Restrictions effect Oil Price and Economic Activity

Eventually, Loop B5 will kick in as Economic Activity decreases sufficiently to decrease Oligopoly Supply Restriction Ability. Also, however unlikely, it's possible that the next administration may step in to reduce the collusion.

Eventually Economic Activity slows and affect the ability of Oil Companies to Restrict Supply

Below are the combined feedbacks from the first and last diagrams. The basic loops remain operative, only they are overridden by interference with basic market operation.

Here are the combined loops. The basic loops remain operative, but are overridden by interference with market forces

On Restricting Refinery Capacity:

Memos Show Oil Companies Closed Refineries To Hike Profits
Posted September 7, 2005 | 02:08 PM (EST)

If you believe the oil industry's response to Katrina, you'd think demanding environmentalists are to blame for $3 per gallon gasoline because the tree huggers shut down refineries with tough new rules. President Bush even mimicked the industry excuse by waiving environmental standards in the wake of Katrina. Well, the industry's own internal memos show the intentional shrinking of American refinery capacity in the 1990s was the oil companies' own idea to pump up profits.

Take this internal Texaco strategy memo: "[T]he most critical factor facing the refining industry on the West Coast is the surplus of refining capacity, and the surplus gasoline production capacity. (The same situation exists for the entire U.S. refining industry.) Supply significantly exceeds demand year-round. This results in very poor refinery margins and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline." The memo went on to discuss a successful campaign in Washington State to shrink refined supply by removing other additives in the gasoline that filled gas volume.

Another Mobil memo shows the company promoted tough regulations in California to shut down an independent refiner. A Chevron memo acknowledged the industry wide need to shutter refineries and discussed how refiners were responding in kind.

Large oil companies have for a decade artificially shorted the gasoline market to drive up prices. Oil companies know they can make more money by making less gasoline. Katrina should be a wakeup call to America that the refiners profit widely when they keep the system running on empty. It's time for government to regulate the industry's supply. The fact that President Bush received $2.6 million from the oil industry for his reelection in 2004 should make regulation of the nation's gas supply one of the Democrats' most important talking points.

Also see, Shell denies greed spurs the closure, May 19, 2004

Why oil chiefs are feelin' groovy By Julian Delasantellis. Asia Times, Apr 24, 2007

What's happening here, in the fall-off in demand for WTI and the accompanying surge in Brent, is that the oil companies are becoming so brazen in their attempts to manipulate the markets for petroleum products that it's becoming very, very obvious.

Thursday, May 17, 2007
Gonzales refused to permit an investigation into gas-price gouging

Myths and Facts about Oil Refineries in the United States, Public Citizen

The Bush administration and some members of Congress blame environmental rules for causing strains on refining capacity, prompting shortages and driving up prices. But in reality, it is uncompetitive actions by a handful of companies with large control over our nation�s gas markets that is directly causing these high prices.