On a recent episode of the InFi podcast, I addressed the complaint I had seen on social media that gasoline prices were rising in America, even though only a small portion of its crude oil typically comes from the Persian Gulf. To explain why there was nothing nefarious going on, I suggested that the high global price of crude oil (in light of the Iranian conflict) would act as a magnet, sucking US barrels away from American refiners. Yes, Americans would have to pay more at the pump, but this was the only way to ensure that the Japanese (say) could continue driving at all, rather than switching to bicycles.
To be clear, I wasn’t a rebel in my theory; I was echoing what the “Community Note” said in response to the social media cynics. However, I tried checking official government data to make sure that my explanation made sense: Was there in fact a surge in exports of crude oil out of the US, following the US/Israeli strikes on Iran? At the time of recording, no such spike was evident in the data, but there was a lag in the reporting. I promised during the episode that I would post here at the infineo website once I had investigated.
Lo and behold, it’s good that I checked! As I will show in this post, the actual situation is far more nuanced than my glib discussion on the podcast acknowledged. I still think “markets work” and that it “makes sense” that US gas prices rose in the wake of hostilities, but the mechanism I laid out in the episode isn’t really what’s going on.
In this first of a two-part series, I’ll simply lay out the crude (pun intended) facts, and then in Part 2 I’ll offer a more informed explanation of what happened to US energy markets following the attacks on Iran.
Clarification #1: US Is a Net Exporter Only If We Include Petroleum Products
The first clarification is that the US is often referred to as a “net oil exporter” (since the shale boom in the 2010s), but this can be misleading. If we focus narrowly on crude oil itself, the US is still a net importer, though it is far closer to self-sufficiency on this front compared to the situation in, say, the 1980s. The following graphs makes this clear:
The above graph shows the explosion in gross exports, hitting 1.5 million barrels / day in recent years. But imports have nonetheless remained higher:
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As the second graph makes clear, gross imports have dropped steadily since their peak in the mid-2000s. Even so, there has been no point in recent decades when the US was exporting more than it was importing, if we are talking about barrels of crude oil.
What people mean when they say the US has flipped into becoming a net exporter, is in reference to the broader category of “petroleum products,” which includes not just barrels of crude but also refined products like gasoline and jet fuel. The following chart shows the story:
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As the chart reveals, around 2020 the US flipped from being a net importer to a net exporter of “crude oil and petroleum products.”
Space doesn’t permit me to elaborate, but let me at least bring up a complication: One could make the argument that the US seems to be “oil independent” even if we focus narrowly on crude, because what is essentially happening is that the US draws in more crude than it needs for American motorists, processes the crude in US refineries, and exports the petroleum products to foreigners. In terms of aggregate figures, the US domestic production of crude oil is enough to cover the production of refined gasoline for US motorists.
However, that glib analysis omits an important complication: Not all barrels of crude oil are interchangeable. Specifically, much of the US refinery infrastructure is designed to process heavy sour crude (such as we obtain from Canada or perhaps Venezuela in the future), whereas the boom in US production from fracking yields light sweet crude. Consequently, the net import figures of US crude obscure the gross flows necessary to efficiently deliver refined gasoline to American vehicles.
Clarification #2: What Happened After the Attack on Iran?
In closing the present post, I present the following table that summarizes the stocks and flows of US crude and refined products, based on EIA data, over a 4-week stretch, starting the week before the US and Israel attacked Iran:
There is much to unpack in this table, and I will defer the bulk of the explanation to Part 2. In particular, there was indeed a giant surge in US exports of crude in the week ending 3/13, but during that week there was also a surge in imports. So there is more going on here than a simple, “The high global price pulled some US crude production out of the country.”
Another deviation of the EIA reality from my podcast theory is that US production of crude didn’t increase after the Iran attack; it was actually somewhat lower in each of the following three weeks.
At this point I will stop my commentary on the table, and find do further research to uncover the full story. I am guessing part of it is the interruption in shipping, with tankers being stranded around the Middle East. (In other words, this situation is not playing out the same way that a natural disaster in Kuwait might have.) Stay tuned for the rest of the story…
Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together the dependability of Whole Life insurance policies with the benefits of blockchain-based finance.
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