Daniel Yergin and other experts say that U.S. tight oil is the swing oil producer of the world.
They are wrong. It is preposterous to say that the world’s largest oil importer is also its swing producer.
There are two types of oil producers in the world: those who have the will and the means to affect market prices, and those who react to them. In other words, the swing producer and everyone else.
A swing producer must meet the following criteria:
- A swing producer must be a net exporter of oil.
- A swing producer must have enough daily production, spare capacity and reserves to influence market prices by balancing supply and demand through increasing or decreasing output.
- A swing producer must be able to act authoritatively and quickly to increase or decrease output.
- In the real world, a swing producer is a euphemism for a cartel. No single producer has enough oil leverage to balance the market and influence prices by itself. That includes Saudi Arabia, Russia, and the United States, the top 3 producers in the world. Obviously, it also includes U.S. tight oil.
- A swing producer must have low production costs and have the financial reserves to withstand reduced cash flow when restricting or increasing supply is necessary to balance the market.
So, let’s go down the list for OPEC and U.S. tight oil.
OPEC’s net exports for 2014 were 23 million barrels per day (mmbpd) (Figure 1). U.S. net exports were -7 mmbpd. In other words, the U.S. is a net importer of crude oil. A net importer of oil cannot be a swing producer.
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