The oil market, stuck in a rut as demand erodes, is trying to find itself.

At virtually zero growth on a year-to-year basis, oil demand is “feeling its mortality,” David Ernsberger, Platts global editorial director, oil, told attendees on Oct. 16 at its Commodity Week conference in Houston.

With Brent crude prices ranging from $125 per barrel to $91 earlier this year, a “battle for the soul of the market” is being waged between a stark rally and a stark slump, Ernsberger said.

Domestic production is at its highest level in 14 years, according to Platts. And surplus production capacity for times of instability or increased demand is on the rise, too.
Developments in the past several years have changed conditions that led extreme crude oil prices four years ago, Ernsberger said.

The relentless flow of oil from the Eagle Ford and Bakken shales is helping knock down U.S. oil imports to their lowest levels since 2009, according to Platts. In Texas, thanks largely to the Permian Basin and Eagle Ford, oil output reached 1.925 million barrels per day (MMb/d) through July, the highest since 1991.

Though petroleum prices rose to more than $109 a barrel between January and April, the upswing was well below 2008’s $140 per barrel, according to the Congressional Research Service.

Domestic crude production capacity is projected to pump out as much as 4 MMb/d, he said. Even at a conservative 2-3 MMb/d increase, that is crude production capacity “the market was not bargaining for in the last three or four years,” he said.

One major question mark for future domestic oil production is whether the federal government will permit oil exports beyond Canada, said Esa Ramasamy, a Platts editorial director.

Companies such as Royal Dutch Shell (NYSE: RDS-A) and BP (NYSE: BP) are among six companies that have applied to the U.S. government for export licenses, the Financial Times recently reported.

Election year distractions have taken the focus off exports, but Ramasamy thinks the government will allow additional exports.

Last year, the United States exported more petroleum products than it imported for the first time since 1949, though refiners still imported large amounts of crude oil, according a March report by the U.S. Energy Information Administration (EIA).

Year to date, net imports of oil have decreased by 99.7 MMb/d, or about 1%, compared with the same time period last year, according to Department of Energy statistics.

The gap between domestic imports and exports of oil has narrowed to 2.34 MMb/d, the lowest since April.

The U.S. is also set to increase exports of LPGs, naphtha, ethylene derivates, LNG and other products.

Challenges remain. A lack of pipelines and waterborne transport has discounted crude oil that would otherwise “fetch a premium,” according to Platts research. A clouded regulatory environment has made investment in pipeline development an iffy prospect for some.

Globally, OPEC estimates a surplus production capacity of about 5-6 MMb/d, Ernsberger said.

Last year, an OPEC report forecasted that unless some capacity shuts down, overall global refining surplus could climb to as much as 10 MMb/d by 2015. In a report released earlier this month, EIA estimated that world oil surplus production capacity is at about 2 MMb/d.

Worth noting, though, is a March report by EIA estimating OPEC spare crude oil production capacity was then at its lowest proportion since the fourth quarter of 2008.