USA is now the world's largest producer of oil. So why

[bwall]

do we have such a large trade deficit?

In 2018 the USA became the largest producer of oil in the world.
https://www.cnbc.com/2019/03/11/us-threatens-to-topple-saudi-arabia-as-worlds-top-oil-exporter-iea.html

As a result, the USA is now importing very little crude:
https://edition.cnn.com/2019/06/14/business/opec-us-oil-imports/index.html

And in 2020, the USA should be a net exporter of oil (!). Due to a statistical quirk, the USA overtook Saudi Arabia as the world's largest oil exporter earlier this year.
https://edition.cnn.com/2019/09/12/investing/us-oil-exports-saudi-arabia/index.html

For decades, the US trade deficit was driven by oil imports, usually around $10 billion USD/month with a monthly trade deficit of $40 -50 billion (or so). Our trade deficit has remained about the same, though, as oil imports have shriveled.

Can anyone explain this?

[terran]

According to https://www.thebalance.com/u-s-trade-deficit-causes-effects-trade-partners-3306276 it's mostly consumer products and cars.

[habanero]

A lot of consumer shit is made in China and environs. And frankly I can't really see any compelling reason to buy an american-made car (with the exception of Tesla) and plenty of reasons why americans want to buy cars made elsewhere.

[ChpBstrd]

Because

[maizefolk]

You have to take into account trends before and after the introduction of fracking.

Take a look at the size of the US trade deficit over time. (Note after some further reading including just more carefully thinking about the subtitle of the graph I posted, I think this might be showing the trade deficit in the first half of each year. Very weird graph choice is so, but we can still look at the trends the same way as described below. Sorry about that.).



In 2006 (before fracking was at all common), looking at the trend in the data prior to that point, where would you have predicted our trade deficit would be (in the first six months of) 2016? At least for me, what I would do it say, "well it's about $400 billion now it's grown about 300 billion in the last decade, so I'd guess that a decade from now we'd have a trade deficit of $700 billion." Instead we have a trade deficit of only ~$300B (in the first six months of) 2016.

The big and rapid growth in domestic oil production since 2006 is part of the reason we have a ~$300B/year /six months trade deficit today instead of $700B/year /six months.

A lot of consumer shit is made in China and environs. And frankly I can't really see any compelling reason to buy an american-made car (with the exception of Tesla) and plenty of reasons why americans want to buy cars made elsewhere.

The vast majority of "non-american" cars sold in the US are builty in the US, just manufactured in factories owned by non-US companies. For example, I drive a Subaru, but it was assembled in a plant in Indiana -- back in 2006 --  and hence did not contribute to the trade deficit in that year.

[ctuser1]

The trade deficit numbers are what they are, but it becomes misleading when you start to use that as a proxy for “look how much more US consumes than it produces”.

The trade balance does not correctly represent the value US adds to the world economy.

Why?

Answer : the numbers do not adequately represent the value of IP that US provides to the world.

Example 1: drugs. The IP generated in the US has a lot more economic value than US chooses to extract from the outside world. Getting into the reasons would get political - so let me avoid that.

Example 2: look at how Apple licenses it’s IP to it’s offshore subsidiary to avoid US taxes. I have Brooklyn bridge for sale if you believe that transaction accurately reflects economic value. By definition, that activity would understate the economic value provided by the us-owned IP because they are trying to accrue profit offshore to avoid US taxes.

[bwall]

A lot of consumer shit is made in China and environs. And frankly I can't really see any compelling reason to buy an american-made car (with the exception of Tesla) and plenty of reasons why americans want to buy cars made elsewhere.

The vast majority of "non-american" cars sold in the US are builty in the US, just manufactured in factories owned by non-US companies. For example, I drive a Subaru, but it was assembled in a plant in Indiana -- back in 2006 --  and hence did not contribute to the trade deficit in that year.

Good point. The USA makes plenty of world class vehicles on their assembly lines--just usually not designed in the USA.
The entire worldwide production of:
BMW X and Z-class are built in South Carolina.
Mercedes GLE (formerly ML) and GLS (formerly GL) are built in Alabama.

Honda builds in Ohio and Toyota in KY. I don't think these models entire worldwide production is in the USA, though. VW is building a factory in Chattanooga, TN and production should begin soon. I wasn't aware that Subaru also built in the USA.

Manufacturers that have their entire production solely in Europe: Land Rover & Jaguar (now owned by Tata), Porsche, Seat, Skoda, Ferrari, Lamborghini, McLaren, Mini, Rolls Royce, & Bentley. These are all well built cars for the most part, but not really mass market (other than Mini). Seat and Skoda aren't even sold in the USA.

The automotive market is truly global.

[maizefolk]

Yup, the Legacy and Outback are both manufactured at a plant in Lafayette, Indiana. I believe that it's the sole source in the world for those models (not that Subaru sell huge numbers of them in Europe but they do sell some).

[bacchi]

American made assembled cars require a lot of parts from other countries. Many transmissions are built in Mexico and Japan.

[bwall]

@ctuser1 ; good point about transfer pricing. It shows up in the statistics as lower US exports. That seems to make a lot of sense.

@maizeman : good point about the trend. It's a case of 'it might be bad now, but it'd be a lot worse if not for fracking.' which I guess is the case, but what are Americans buying!?!?? ! Everything, I guess.

[fattest_foot]

And in 2020, the USA should be a net exporter of oil (!). Due to a statistical quirk, the USA overtook Saudi Arabia as the world's largest oil exporter earlier this year.

Statistical quirk? Fracking isn't a statistical quirk.

[habanero]

It is also important to remember that the import/export balance of oil products in the US.

In 2018 the US exported 7.6 million barrels / day
In 2018 the US imported 9.94 million barrels / day

On the surface this might seem like mostly  pointless activity. However, the US generally imports crude oil (78% of imports) and exports refined products (fuel, gasoil etc) - refined products made up 73% of exports.

There is no such ting as a single type of generic crude oil. Crude oil from different places has different chemical properties and refineries are set up to handle specific types of crude oil (which is pretty much useless in its base form) into various refined products (which are useful). So while everyone needs the generic refined products, the raw materials might have to be sourced from specific sources and increased production somewhere cannot automatically offset reduced production elsewhere.

[Toothpick]

I thought we covered this in the world reserve currency thread?  It's the same issue.

Obviously the United States is consuming more than it produces.  The difference is financed by the ROW, which has been fairly happy to do so thus far, as they accumulate US currency reserves.

Unfortunately these deficits have now accumulated into a pile of debt that makes the US the world's largest debtor nation. 

The cause?  The US Dollar is artificially high.  Therefore, US goods are not very competitive on the world market.  And from the US view, foreign goods are relatively cheap.  The solution?  The world has to have a major monetary system reform.  The ROW must stop accumulating US dollar reserves, and thereby save America from reckless over-consumption.  Thankfully, several countries are already doing this.

Trump's tariff war is a mere symptom of this underlying, fundamental problem.  It's a sad situation that he doesn't have better advisement on the issue, IMO.  Instead of sitting down with other nations and truly discussing the underlying issues, we throw tariffs around, causing tremendous resentment with our world trade partners.  It's very frustrating to watch.

[Travis]

The price of oil has also been quite low for the last several years, so us selling more oil products than we buy doesn't garner as much money as you might think.

[Car Jack]

Fracking mostly yields natural gas, which has been the energy bonanza here.  Yes, I know some oil too.  Electric generation is the place that moves the needle on energy.  Coal plants first moved from Eastern tunnel dug coal to western strip mined coal because it's cheaper.  With fracking, these plants along with oil plants are being (or have been) converted to natural gas because it's cheaper than both coal and oil.  This frees up oil supply.  New oil supplies, including the crap from tar sands in Canada are producing more supply.

A funny question to answer is why do all the Northeast refineries buy oil from Saudi Arabia?  The answer is that the shipped price is cheaper than oil from the gulf. 

[Financial.Velociraptor]

Fracking mostly yields natural gas, which has been the energy bonanza here.  Yes, I know some oil too.  Electric generation is the place that moves the needle on energy.  Coal plants first moved from Eastern tunnel dug coal to western strip mined coal because it's cheaper.  With fracking, these plants along with oil plants are being (or have been) converted to natural gas because it's cheaper than both coal and oil.  This frees up oil supply.  New oil supplies, including the crap from tar sands in Canada are producing more supply.

A funny question to answer is why do all the Northeast refineries buy oil from Saudi Arabia?  The answer is that the shipped price is cheaper than oil from the gulf.

It is a little more complex than this.  Marcellus and Utica shales are very "dry" and produce mostly gas and "drip".  Permian shale is very "wet" and produces a richer mix of condensate, napthene, and paraffin with less gas and drip.  American refineries aren't set up to take advantage of cheap WTI, which is "light/sweet".  During the Peak Oil fears, US refineries retooled to efficiently process "heavy/sour" crude from Canadian bitumin and heavy crude from Venezuela.  So we still import a lot of Canadian bitumin because it is net cheaper to buy dirty discount oil and reform it than buy high quality WTI at a premium. 

We will be shipping light/sweet crude outbound and watching it pass heavy/sour in the night inbound for a decade or more instead of using what we actually produce.

[maizefolk]

@Financial.Velociraptor Not directly related, but your post reminded me that I've always wondered are light/heavy and sweet/sour two ways of saying the same things? Or could one have light sour or heavy sweet oils in addition to the light/sweet and heavy/sour that are usually mentioned in stories about the refinery industry?

[bacchi]

@Financial.Velociraptor Not directly related, but your post reminded me that I've always wondered are light/heavy and sweet/sour two ways of saying the same things? Or could one have light sour or heavy sweet oils in addition to the light/sweet and heavy/sour that are usually mentioned in stories about the refinery industry?

Sweet is low sulfur. Light is low density.

WTI and some Saudi crude is light and sweet. Some of the Canadian fracking crude is light and sour (LSB/Light sour blend).

[robartsd]

The trade deficit numbers are what they are, but it becomes misleading when you start to use that as a proxy for “look how much more US consumes than it produces”.

The trade balance does not correctly represent the value US adds to the world economy.

Why?

Answer : the numbers do not adequately represent the value of IP that US provides to the world.

Example 1: drugs. The IP generated in the US has a lot more economic value than US chooses to extract from the outside world. Getting into the reasons would get political - so let me avoid that.

Example 2: look at how Apple licenses it’s IP to it’s offshore subsidiary to avoid US taxes. I have Brooklyn bridge for sale if you believe that transaction accurately reflects economic value. By definition, that activity would understate the economic value provided by the us-owned IP because they are trying to accrue profit offshore to avoid US taxes.

I think you make a good point about trade balance not being the same as value provided (especially in the case of pharmaceuticals). Of course giving failing to collect the economic value of pharmaceutical IP doesn't do anything to help pay off the debts we incur buying our imports.

[Financial.Velociraptor]

@Financial.Velociraptor Not directly related, but your post reminded me that I've always wondered are light/heavy and sweet/sour two ways of saying the same things? Or could one have light sour or heavy sweet oils in addition to the light/sweet and heavy/sour that are usually mentioned in stories about the refinery industry?

"light" oil is higher in condensate than napthene and paraffin.  "Sweet" crude is low Sulfur (the oil hands used to taste the product and low sulfur was literally sweet tasting.)  Light and sweet tend to go together and heavy tends to also be sour but it isn't necessarily the case in all formations.  Similarly, a 'dry shale' has more natural gas and drip and a 'wet shale' has a higher mix of crude (which can be any mix of light/heavy or sweet/sour.)   Shales can also vary across the actual formation.  The Eagle Ford is notoriously dry in the eastern part of the formation and progressively wet as you move west.