Why the US is sending oil overseas

The United States has become a net exporter of oil.

Pick yourself up off the floor. It's true -- at least by one definition of "oil." And the change to shipping oil overseas will have major effects on U.S. economic growth and on what you should hold in your portfolio.

Let's start by nailing down exactly what I mean by oil.

Crude definitions

The U.S. is not about to become a net exporter of crude.

In September, the United States exported 35,000 barrels a day of unrefined crude oil. That same month, the U.S. imported 9 million barrels of crude oil a day. If you look just at crude, the U.S. is the same huge importer of oil it has been for as long as most of us can remember.

But if you look at the figures for refined petroleum products, the picture is shockingly different. In September, the United States exported 3.2 million barrels of refined petroleum products a day and imported just 2.2 million barrels a day. That's a surplus of exports over imports of roughly a million barrels a day. For the first nine months of 2011, according to the U.S. Energy Information Agency, the U.S. exported 752 million barrels of refined petroleum products: gasoline, jet fuel, kerosene and such chemical-industry feed stocks as ethylene, butane and propylene.

The swing in less than a decade is immense. For 2005, for example, the U.S. imported 900 million more barrels of refined petroleum products than it exported.

This huge shift doesn't have just one cause.

Booming oil fields, slow economy

Part of it is due to the oil boom in the United States as a result of new technologies. Petroleum production from oil shale has turned North Dakota into a major domestic oil producer, with production rising to 424,000 barrels a day in July 2011 from 98,000 barrels a day in 2005. (See "Unemployed? Head for North Dakota" for more.)

Oil from oil shale has also reversed what looked like the inevitable production declines for older fields in states such as Texas. Oil production there had tumbled from 2.6 million barrels a day in 1980 to 1.9 million in 1989 and down to 1.087 million in 2008. But instead of continuing its march toward zero, production in Texas edged back up in 2009 to 1.106 million barrels a day and to 1.169 million in 2010. That reversal has given U.S. refineries a lot more domestic crude to work with.

The shift is also partly a result of the very slow economic recovery in the United States. U.S. gasoline consumption topped out in 2007. In August 2011, a peak driving month, U.S. consumers used almost 8% less gas than they had four years earlier. In contrast, gasoline consumption continues to climb in faster-growing emerging economies. Gasoline consumption in India, for example, was 5.4% higher in October 2011 than in October 2010.

The U.S. export swing is also the result of a shortage of refinery capacity in some parts of the world and for some kinds of products. For example, while Mexico, one of the world's big oil producers, doesn't import any crude from the United States, it does import a growing volume of refined petroleum products. Mexican imports of gasoline climbed by almost 70% from 2005 to 2010. Brazil, which imports neither crude oil nor any gasoline from the United States, has still seen imports of refined petroleum products from the United States grow by 220% from 2005 to 2010. The biggest jump there has been in distillate fuel oil.

And, finally, part of it is geography. The economies of Latin America are seeing some of the fastest rates of growth in consumption of petroleum products -- and the U.S. Gulf Coast refineries are perfectly placed to export to those countries. In addition to Mexico and Brazil, Argentina and Peru have recently become net importers of petroleum products from the United States.

What the oil shift means

I can see two big effects from this shift to the U.S. being an exporter of refined oil products.

First, it dampens, to some degree, the impact of higher oil prices on the U.S. economy. There's no evidence to suggest that U.S. consumers have gotten any benefit from the United States becoming an exporter of refined oil products. Gasoline prices, as far as anyone can tell, haven't fallen as a result, for example. Higher oil prices are still likely to take money out of consumers' wallets that could have been spent on things other than gasoline.

Stocks mentioned in this article: HollyFrontier (HFC, news), Valero (VLO, news), Marathon Petroleum (MPC, news) and Jubak Global Equity Fund (JUBAX).