Turmoil in the Red Sea Benefits the U.S. as International Oil Buyers Turn to American Shale

In the midst of escalating tensions and attacks on commercial vessels in the Red Sea by Iran-backed Houthi militants, disruptions in the transportation of vital commodities like oil have prompted international oil buyers to seek alternative sources. The surprising beneficiary appears to be the United States, as data from the Energy Information Administration (EIA) indicates a significant surge in U.S. crude oil exports.

As reported by the EIA on Thursday, the week ending on December 29th saw a greater-than-expected decrease in U.S. crude oil inventories, coupled with substantial increases in gasoline and distillate inventories. Consequently, global oil prices experienced a slight dip on Thursday.

However, Robert Yawger, the Energy Futures Director at Mizuho Securities USA, underscored another crucial aspect of the EIA report – the substantial increase in U.S. crude oil exports. According to the EIA data, U.S. crude oil exports rose by 1.377 million barrels per day, reaching 5.292 million barrels per day for the week ending December 29th.

"For the first time since the Houthi rebels in Yemen began disrupting international shipping in the Red Sea, we are witnessing a significant surge in U.S. crude oil exports," stated Yawger in a report released on Thursday.

He elaborated, "It is evident that international shippers are concerned about potential attacks in the Red Sea, and rerouting around Africa would also increase shipping costs. Therefore, a safer and more cost-effective procurement method is steering vessels toward the U.S. Gulf Coast, loading inexpensive U.S. oil – a particularly attractive option for EU buyers."

"Forget about the Houthi rebels in the Red Sea and the threats from Iran," he asserted, "when you purchase U.S. crude oil, you don't need the protection of the U.S. Navy; a round trip of just two to four weeks is all it takes."

Yawger remarked ironically, "The chaos in the Middle East is ironically pushing international crude oil customers into the arms of U.S. shale oil producers."

The Red Sea serves as a crucial passage for Middle Eastern oil destined for Europe, Asia, and North America, accounting for approximately 12% of the total maritime trade in oil.

Yawger anticipates that with geopolitical tensions seemingly escalating daily, U.S. crude oil export levels will likely remain above 5 million barrels per day in the coming weeks, potentially breaking historical records. According to EIA data dating back to February 1991, the last time U.S. crude oil weekly exports reached a historic high was the week ending February 24, 2023, at 5.629 million barrels per day.