Tayvis Dunnahoe
Exploration Editor
On Jan. 1, members of the Organization of Petroleum Exporting Countries as well as several non-OPEC producers were supposed to begin curtailment of crude oil output in an attempt to hasten market rebalancing (OGJ Online, Dec. 13, 2016). It's the first such joint deal in 15 years.
US producers hope to rebound if the nearly 2 million b/d output reduction provides some stability to oil prices. North American unconventional plays have been hit hard by the price decline since 2014. The US has been a net importer of oil for many decades, but terms such as "energy independence" and "export" bolstered confidence in increasing US oil supply and unlocking vast unconventional resources to new heights before the mid-2014 downturn.
US supply may yet rebound with higher prices because of the OPEC reduction deal, which marks an important milestone in history for global oil and gas trade.
A history of oversupply
The Pennsylvania hills echoed with the sounds of timber crews in 1860 as new cooperages formed to join the oil industry at Oil Creek near Titusville, Pa. Harper's New Monthly Magazine exclaimed the oil well to be "the 'open sesame' of wealth," in its report on Col. Drake's Aug. 27, 1859, discovery. By January 1860, oil was selling at $20/bbl and Oil Creek was packed with more than 130 producing wells, which yielded a total of 1,288 b/d. Much of the production was floated down the Allegheny River to refineries in Pittsburgh. Even then, oversupply would soon spell plummeting prices and instability.
In 1860, as oil became the definitive resource of the century, the US was entering the Civil War. Despite the political upheaval, Pennsylvania's oil fields continued producing. Oil was becoming a much sought-after commodity, and three British firms had consigned to take delivery direct from Titusville. Oil was transported overland across Pennsylvania. Teamsters' wagons trudged primitive roads to modern day Union City, 20 miles north of Titusville. There, flatcars were stacked with barrels to make their way by steam locomotive to Philadelphia. According to the American Oil & Gas Historical Society, "saltwater residue would eat at the barrels' glue and cause leakage." The risk of fire or explosion was constant.
Oil by sea
No ship had yet crossed the Atlantic Ocean bearing a cargo of oil. It took stevedores 10 days to load 901 bbl of Pennsylvania crude and 428 bbl of refined kerosene. Each 40-gal bbl (the industry would not establish the 42-gal bbl until 1866) weighed 360-400 lb. The veteran cargo brig Elizabeth Watts, charted by Peter Wright & Sons, departed the docks at Philadelphia on Nov. 19, 1861.1 Capt. Charles Bryant and his seven crewmembers sailed the cargo across the Atlantic in 45 days. On Jan. 9, 1862, the Elizabeth Watts sailed down the Thames River, arriving at London's Victoria Dock. It took 12 days to unload the 1,329 bbl.
A year later, Philadelphia exported 239,000 bbl of oil without tank cars or the benefit of tanker barges common to the industry today.
Into the modern
The industry changed forever in October 1973 when key members of OPEC enacted a US embargo on oil imports through March 1974. By the embargo's end, the oil price had risen to $12/bbl from a previous $3/bbl.
The US embargo was followed by the passage of the 1975 Energy Policy and Conservation Act (EPCA). The act intended to boost US supply by setting price controls, establishing a strategic petroleum reserve, and it also banned oil exports though the US was already a net-importer of oil.
At the time, an Oil & Gas Journal editorial said the EPCA was an energy policy in name, but did not solve the problems of expanding and conserving supply (OGJ, Dec. 22, 1975, p. 13).
By 2014, oversupply once again began driving oil prices down. As of this writing, the oil price has rallied to $53.22/bbl. History will determine the final balance.
Reference
1. Flayhart III, W., "America Exports Oil," American Oil & Gas Historical Society, www.aoghs.org.