US crude oil output fell this past week, but our oil imports were the highest since early April, and with a major refinery idled, that unexpectedly led to the largest increase in our inventories of oil in storage in 4 months, precipitating yet a further crash in the price of oil. 

US field production of crude oil fell for the third week in a row in the week ending August 14th, from 9,395,000 barrels per day in the week ending Augudt 7th to 9,348,000 barrels per day in this week's report.  While that was down 2.7% from the modern record of 9,610,000 barrels per day set in the week ending June 5th, it was still 9.6% higher than our output of 8,556,000 barrels per day in the same week last year.  Our imports of crude oil, meanwhile, rose for the 3rd week in a row, jumping from 7,573,000 barrels per day in the week ending August 7th to 8,038,000 barrels per day in the current report. While that's 2.4% more than the same week last year, our 7.6 million barrels per day average crude imports of the last 4 weeks is still 0.9% lower than the same 4 week period of last year..

However, even with the increased oil supply brought about by that large increase in imports, that oil was not being put to use to the same degree as last week. Due in large part to the unexpected August 8 outage at the BP refinery in Whiting, Indiana, the largest BP refinery and the largest in the US Midwest, U.S. crude oil refinery inputs dropped to 16,775,000 barrels per day, from the 17,029,000 barrel per day level of the week ending August 7th.  So with greater supply and less refinery throughput, our crude oil inventories in storage rose by 2,620,000 barrels to 456,213,000 barrels in week ended August 14th, 24.3% more oil than the 367,019 ,000 barrels we had stored at the end of the 2nd week of August last year.  That was more oil than was ever stored anytime in August in the 80 years that the EIA has records for, which had never seen the 400 million barrel inventory level breached before this year.  The news of even higher inventories during the summer driving season when inventories usually fall sent oil prices down by 4.8% to a six and a half year low at $40.57 a barrel on Wednesday, and although the expiring September contract price inched up on Thursday on news of the first hurricane of the Atlantic season, oil prices for October delivery crashed again on Friday in the midst of a global market panic, briefly slipping below $40 a barrel, before closing the week at $40.45, capping the longest weekly losing streak for oil prices in 29 years.

So, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil?  One reason is the contango trade that we've talked about in the past, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future. At one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit.  But as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December.  So for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader.  They both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts...

Another reason for continued high imports of oil is that we're exporting more refined products than ever before.. In the 2nd week of August, our total exports of refined petroleum products averaged 3,884,000 barrels per day, up 10.6% from the 3,512,000 barrels per day we were exporting in the same week last year.  But that's also more than double the 1,851,000 barrels per day of refined products we were exporting in August 2009, and more than quadruple the 964,000 barrels per day of refined products we were exporting in August of 2004.  We're also exporting more crude oil too, mostly from the Bakken to Canada, where the lighter grades of distillates are blended with tar from the oil sands to produce diluted bitumen, or dilbit, which can then be delivered by pipeline.  On a monthly basis, our total exports of crude and petroleum products hit a record 4,943,000 barrels per day in April, more than double the 2,432,000 total exports of April five years earlier...

But the week just ended was somewhat an anomaly, however, in that with the aforementioned refinery constraints, our total exports did not rise, and our total imports of refined products rose to 2,614,000 barrels per day, up from 1,927,000 barrels per day of refined product we imported just two weeks ago.  Tthat was only the 2nd time in the past two years wherein our refined product imports topped 2.6 million barrels per day, and as a result our total imports of crude oil and petroleum products rose to 10,652,000 barrels per day, for our highest weekly total imports this year.  Subtracting the 4,460,000 barrels per day of crude and products that we exported this week means our net petroleum and product deficit was at 6,192,000 barrels per day for the week, which was also the greatest excess of crude and products imports over exports that we've seen this year...

But even with all the oil and products that we're importing, there's been an ongoing push by the frackers and their supporters to end the federal ban on crude oil exports, which was instituted in 1975, at a time when our production started to slip and domestic shortages developed.  The reason the oil industry wants to export crude, even though we're importing so much, is simple; international oil prices have been running between $5 and $10 a barrel more than US oil prices.  So if they're able to sell their crude overseas (Canada and Mexico are exempt from the export ban), US prices for oil will quickly jump to the international price, and we'll be paying 10% to 20% more for our oil products than we otherwise would if our market remained protected.  A bill to lift the ban has passed the U.S. House, and a similar bill cleared the U.S. Senate Energy Committee in July, and it will probably be taken up when the Congress returns from recess after Labor Day.  A new report, published Friday by the Center for American Progress, predicted that US oil production will increase if the export ban ends, and that an average of 26,385 new oil wells would be drilled in the U.S. each year between 2016 and 2030 if the ban is lifted, 7,600 more wells per year than would be otherwise. As a result, an additional 137 square miles of land would be developed for oil each year. Over 15 years, that would be 2055 more square miles of oil drilling sites than we'd otherwise see, or a total drilled out and fracked area more than 60% larger than the area of the state of Rhode Island..  So if we want to save ourselves from that dystopian future, we'd better start pushing back against the frackers on that export issue now..

NB: the above was excerpted from here…