DENVER—Amid low oil prices and geopolitical shifts, the U.S. has the opportunity to take on a greater role in the global oil trade, Petrie Partners’ Tom Petrie said during Hart Energy’s 2015 DUG Bakken & Niobrara conference.

The relative ease of transport and abundance of North American oil, which in 2014 surpassed 8.6 million barrels per day (MMbbl/d) in production, should ensure a growing trade position for the U.S. moving forward. Petrie is optimistic about Congress’ willingness to lift the ban on oil exports by second-half 2015 or early 2016, allowing producers to ship light oil to international markets.

“We’ve got so much light oil in the U.S. that we’re very rapidly approaching the full capacity of U.S. refinery systems to efficiently operate using that light oil,” Petrie said. “Much more effective would be shipping some of that oil at a premium price into the international market and continuing to import medium and heavy oils that are more sulfurous and well designed for the reconfigured U.S. refinery system to run it.”

About $85 billion has been spent in reconfiguring refineries in the past decade. But some of the more sophisticated refining capacity might have to be idled without U.S. light oil supplies gaining access to international markets, he said.

In addition, Petrie anticipates growth of North America’s oil supply, particularly from shale, will prove sustainable even at lower prices.

“I’m not talking about today’s price levels, but I think a recovery into something like the $60 to $80 or maybe even to $85 range becomes quite workable,” he said. “[This] in fact is probably a range that doesn’t create excessive economic rent within the service sector but will make it more viable for all parties to get back to a sustainable mission.

With companies like Whiting Petroleum (NYSE: WLL) and Oasis Petroleum (NYSE: OAS) focusing on efficiency in the Bakken, some U.S. producers remain flexible and innovative in the present price climate. This could give U.S. producers a global competitive advantage, since countries such as Iran, Venezuela, Libya and Iraq tend to have higher imbedded production costs, Petrie said.

Flashpoints

High breakeven points in such countries and trading partners among others mean they are vulnerable in a low oil price environment.

However, instability is a worry.

“We should think of the years from 2015 to 2016 as potentially years of living dangerously,” Petrie said. “Lots of unintended consequences can come about by miscalculations by some of the leaders of the countries that we’re talking about here, and lots of confrontation is already occurring.”

The vulnerability of such countries has Petrie convinced they’re unlikely to make the operating adjustments that are being made in the U.S. and in Canada to weather $40 oil or oil prices in the $40 to $60 range.

Geopolitically, the evolution of power triangles involving Russia, China, India and Iran are shifting the dynamics of worldwide oil and gas trade. These relationships are based on a shared interest in their energy economics, with Russia and Iran exporting energy and India and China importing it. This shift in geopolitics poses a challenge on an ongoing basis for leaders in the U.S., Petrie said.

Looking at the current state of oil and gas markets, Petrie encourages the industry to examine the forces at work daily versus focusing on the unknown, such as the direction of oil prices.

In addition to power triangles, other factors impacting the global energy outlook include Saudi Arabia’s inclination to replay parts of the 1985 to 1986 market share competition. “I’m very convinced of this by virtue of the fact that they’re now confronting a two-front war involving both Yemen and ISIL in Syria,” he explained. “The cost of that war along with this is really going to be a factor as we move through the balance of this year and into early next year.”

Declining prices always have the potential to trigger unintended consequences. “I think we have to pay attention to the possibility for miscalculations on a daily basis,” Petrie said. “One of the big ones is what’s happening right now in the negotiation with Iran. If in fact there is a settlement and Iran has sanctions removed, we will see an incremental supply that will test lower.”

Petrie remains convinced, however, that a further big oil price decline could create a more powerful self-correcting force. “We’ve lived through that in 1985, and we saw it again in the late ‘90s,” he said. “I think it would be comparably, powerfully self-correcting if we do experience it, say, in the aftermath of what might happen with Iran.”

Contact the author, Mary Hogan, at mhogan@hartenergy.com.