You may have noticed the upward drift in petrol prices as you filled up following your weekly shop.
Opec’s agreement with Russia in December to curb supplies did the trick and helped end a glut. The Brent crude oil futures price has risen by 31% to $67 since.
The oil producers’ cartel over the weekend agreed again with Russia to keep the cuts, totalling 1.2 million barrels per day in place until June, and probably for the rest of the year.
You might think this is an old story, rent-seeking oil sheikhs and greedy dictators ripping off consumers again.
But the world is very different today and the crude oil market is no longer simply a battleground between Western consumers and Middle Eastern producers. It is primarily a long-drawn out war for market share, and the country winning the battle now is the US.
Thanks to the shale oil revolution the US is not just able to cover its own needs but is now exporting huge quantities of crude as well as oil products.
The US Energy Information Administration signalled in November that for the first time, it had exported more oil in a single week than it imported, selling to foreign customers 3.2 million barrels per day of crude and 5.8 million of petrol products.
It reckons that by 2020 the country will be, overall, a net exporter of crude. The US continues to import it to satisfy the demand of some refiners for heavy, sulphurous (sour) crudes — more on that later — but the soaring output of light, sweet crudes from shale is turning the global oil market upside down, with the world’s biggest consumer being also a major exporter.
So much more is coming out of shales in Texas and the Dakotas, a million extra barrels since July, that American oil producers are setting prices in Europe.
Because US oil is now so often the cheapest light sweet crude delivered to Rotterdam, Argus, the oil price assessment agency has decided to include it in a new North Sea crude price benchmark.
And so influential are US imports that Argus has decided to include some US light sweet crude in its assessment of the daily physical North Sea Brent crude price benchmark. If the US is gaining share in supplying the world’s biggest commodity market, the question is who is losing share?
And the answer is Opec countries. The output cut agreed in December is only part of the problem because some of the cartel are unable to even meet their entitlement in quota share. Iran is in thrall to US sanctions and Venezuela has been devastated by years of government looting and investment neglect.
Iran and Venezuela export heavy sour crudes, which have in the past suffered a significant price discount to the lighter (less viscous) crudes produced in the North Sea, the US and a few Opec countries, such as Nigeria.
It also suffered a heavy discount to benchmark North Sea Brent because it is more costly to refine into valuable products, such as petrol or naphtha, used as a raw material for petrochemicals.
However, the rules that governed pricing in the oil world have recently been turned on their head.
The US flood of light, sweet crude oil and the collapse in exports of heavy Venezuelan and Iranian oil mean that sour crudes, once the Cinderellas of the oil market, are now fetching prices almost on a par with Brent.
The upset is playing havoc with the profit margins of some US and Indian refiners, who invested heavily in sophisticated equipment to refine very cheap Venezuelan or Iranian heavy crudes, only to find them suddenly too expensive.
Since November, 2.5 million barrels per day of sour crude output has been taken off the market due to sanctions, Opec quotas and disruption, said Sean Cronin, analyst at Argus — a huge disruption in market dynamics.
Many in the industry wonder whether the market shift to lighter crudes is long-term or just a blip. The shift to light, less sulphurous oil is good for the environment and the world, and it is filling the pockets of the core Opec producers, who are getting more bucks for each barrel of sour crude they export to Asia.
Yet, the resource remains in the ground; there are billions of barrels of heavy crude in Venezuela, Iran and Canada. A higher price makes investment and production more likely, if politics and the market permits.
Meanwhile, the US technological revolution is setting the pace and the agenda.