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Petroleum Exports Soar To New High In Economic Boost

The domestic energy production boom fueled by fracking and new discoveries is turning trade into a bigger boost for the economy.

A sharp improvement in the petroleum trade balance helped shrink the overall deficit by 21% in December to $38.5 billion, the smallest in nearly three years, the Commerce Department said Friday.

The trade data suggest Q4's gross domestic product will be revised to show an expansion vs. the initial 0.1% contraction.

Petroleum exports rose 9% vs. November to a record $11.6 billion — up 1,056% from December 1999. Petroleum imports fell 11% to $30.3 billion and were down 21% from a year earlier, as greater U.S. energy output cut demand for foreign supplies.

Hydraulic fracturing, or fracking, also has unlocked more natural gas, which is now more attractive to U.S. industry as a cheap energy source and chemical feedstock.

Cheap Energy Edge That, along with other factors like rising foreign wages, is spurring a return of some manufacturing back to the U.S. to further tilt trade to its advantage.

Dow Chemical (DOW) and Royal Dutch Shell (RDSA) are building chemical plants in the U.S. while Nucor (NUE) plans to make more steel here using natural gas. Potash (POT) is reopening an ammonia plant closed in 2003.

"We're at a very interesting inflection point in the U.S. trade balance," said Robert Dye, chief economist at Comerica.

In addition to the steel and chemical industries, cheap U.S. oil and natural gas will benefit a variety of other energy-intensive sectors, Dye added. He has even heard talk of "reshoring" toilet manufacturing, which requires a lot of heat to bake ceramics.

The drilling process itself will be a long-term economic driver as well, even though the number of rigs has eased, Dye said. Extraction activity will continue to require steel and equipment, pro vide high-paying jobs and boost tax revenue for governments.

Increased domestic oil production should keeping holding down imports too. In November, the International Energy Agency predicted fracking will help the U.S. become the world's top oil producer in the next several years before ceding the title again in 20 years.

The IEA sees U.S. production of 10 million barrels per day in 2015 growing to 11.1 million in 2020. It expects output from current No. 1 Saudi Arabia to be 10.9 million barrels a day in 2015 but dip to 10.6 million by 2020.

The agency forecasts U.S. output will drop again to 9.2 million bpd in 2035, with Saudi production rising to 12.3 million bpd.

But the petroleum export boom has less to do with fracking and more to do with U.S. refineries, said James Williams, an energy analyst at WTRG Economics.

U.S. laws generally bar domestic crude from being sold over seas. Refined products like diesel are fair game, and most crude that export-oriented U.S. refineries use is imported, he said.

But those refineries are more efficient at processing heavy crude, which has been more prevalent in recent discoveries, than foreign rivals are, he said. That has made U.S. refined products increasingly competitive.

For all of 2012, exports of fuel oil climbed 14% to $60.2 billion, and exports of other petroleum products rose 4% to $57 billion.

Domestic oil output "is more relevant to the reduction of imports of crude," Williams said. "But it's improving our balance of trade."