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2014/12/09

It's happening.

We now know that the one thing  Saudi oil princes fear more than Ghawar going dry is losing control of global oil supply...
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It's happening.
By Keith Kohl | Tuesday, December 9th, 2014
Keith Kohl

We now know that the one thing Saudi oil princes fear more than Ghawar going dry is losing control of global oil supply.

After all, the lengths to which Saudi Arabia will go to remain at the top of the oil-producing food chain are absolutely limitless.

Exerting its influence to keep OPEC's output steady, for example, will have a devastating effect on the world's largest producers — namely Venezuela, Russia, and the United States. (Rumor has it that had the Saudis not done this, OPEC would have cut output between 1.5 and 2 million barrels per day.)

All three of these rivals need crude prices much higher than they currently are, and all three are considered to be rivals by OPEC's top producer.

Now, you might ask what the Saudis have against Venezuela. After all, they're all playing for the same team, right?

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A Saudi Interlude...

Again... it's all about losing market share. And in Venezuela's case, it all comes down to the U.S. Gulf of Mexico.

In total, OPEC members export approximately 2 million barrels per day to the U.S. Gulf — 73% of which is from Venezuela and Saudi Arabia.

Between 2009 and 2013, Saudi oil exports to the Gulf Coast increased 45%, while Venezuela's exports declined by more than 19%. I'd also point out that PADD 3 (the Gulf Coast district) is the destination for over two-thirds of all Saudi exports to the United States.

For Venezuela, the stakes are even higher, considering that nine out of every 10 barrels of oil it ships to the U.S. are sent to the exact same area.

Well, so much for being friends.

And it's no question that the Saudi Kingdom has all but declared war on U.S. oil producers. Believe me, dear reader — if anyone understands how close Saudi Arabia is to losing its market share, it's the country's top Oil Ministers, who have been sounding the alarm bell for years.

Think about it this way...

If the Saudis weren't aggressively pushing for lower crude prices, then the U.S. would continue increasing production in 2015. But now that prices are firmly in the mid-$60/bbl range, we can expect nearly every major producer to reduce its drilling activity.

Had U.S. oil production growth remained unchecked, the decision to lift the oil export ban would have been much easier for Congress. Unlike the multi-year delay on the Keystone decision, lifting the ban on oil exports is a headline that's going to start popping up all over Capitol Hill.

Remember, the incoming chairwoman for the Senate's Energy and Natural Resources committee, Lisa Murkowski, has already vowed to speed up the permitting process for new projects.

Is it really any wonder why Saudi Arabia pushed so hard for OPEC to keep levels unchanged? Some reports have estimated that if the oil export ban were lifted next year, the U.S. would be able to export nearly 3 million barrels per day in 2015.

Personally, I don't think it's a question of if but rather when the United States will lift its four-decade ban on crude oil exports.

But do you really need to wait for the answer?

Maybe not.

Even with the ban in place, what a lot of people may not realize is that the U.S. is already exporting crude oil. It's being done through perfectly legal channels, and U.S. oil exports are going to create an unprecedented buying opportunity for a certain group of investors...

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The Fairbanks Fracas

As it stands now, it is illegal to export oil produced inside the United States without a license. The rule was put into place nearly four decades ago, a few years after U.S. oil production hit a peak at slightly more than 10 million barrels per day in November of 1970.

One of the exceptions, however, is for crude that is transported through the Trans-Alaska Pipeline System... which we all know may be in danger of being shut down if the North Slope is unable to reverse its decades-long production decline:

8-19-14-1small

Click Chart to Enlarge

For individual investors like us trying to find the short-term players on U.S. crude exports without having to rely on Congress to lift the ban, the only place to look is Big Oil.

In fact, major oil players like ConocoPhillips have already started shipping crude oil from Alaska to refineries in South Korea.

Some of you might remember a few months back, when the first 800,000-barrel tanker, with about $75 million worth of crude oil locked inside its hull, started its journey across the Pacific.

Once the ban is lifted, however — and U.S. producers in the Lower 48 have access to global oil markets — the sky is the limit.

Mark my words: 2015 will be the year U.S. tight oil goes global.

Until next time,

Keith Kohl Signature

Keith Kohl

follow basic@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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