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Isaac Leung

Political Risk Looms over US Oil Imports

by Isaac Leung | Dun & Bradstreet Editor

June 16, 2015 | No Comments »

Oil-tanker-ship-imports_shutterstock_155213861_1100pxAmerica’s oil industry has innovated and adapted at a staggering pace. However, regardless of oil price swings, the political-risk footprint of America’s oil supply continues to evolve.

The US has ratcheted back its dependence on high-risk countries such as Venezuela, Nigeria, and Iraq in the past 15 years. North American tight (or shale) oil is displacing US imports of light, sweet crude in a globally impactful phenomenon that is shaping the counsels of the once-all-powerful OPEC cartel.

In 2014 the US imported at least 3.3 million barrels a day of crude less than it did in 2010. Meanwhile, the list of countries supplying the US fell from 52 at the height of the 2000s precrisis boom in 2006 to 42 by 2014.

Despite this, Dun & Bradstreet’s weighted oil supply-risk index for the US has remained in the DB2-3 range. (In the DB1-7 country risk index, DB1 indicates the lowest risk and DB7 the most severe risk). This placed the US oil supply on the verge of the “Moderate risk” DB3 category in 2004-09, albeit staying in the “Low risk” category since.

This accounts for safe US production. When the US’s own DB2 country risk indicator and domestic production were excluded, the import supply risk index stood in the DB4-5 range for most of the past decade and a half. It briefly entered the DB5 “High risk” range in 2006-07, a risk category associated with “considerable uncertainty.”

What is more remarkable is the steady rise in the import supply risk index since 2011. In 2011 the import supply risk index briefly relaxed into the DB3 “Slight risk” category as unconventional oil output began its upward trajectory, imports from high-risk countries fell, US oil demand remained subdued, and the negative effects of the Arab Spring had yet to register fully.

However, over the next few years the import supply-risk index rebounded back into the “Moderate risk” category. Then in 2014 it hit “High risk” again. Don’t panic, though — much of the change owed to Canada’s downgrade into the DB2 range from 2013.

Top Suppliers of Crude Petroleum Oil to the US (2014)

Country Barrels/Day (Millions) % Total Imports Risk Rating
Canada 2.81 37.8% DB2b
Saudi Arabia 1.23 16.6% DB3b
Mexico 0.80 10.7% DB3d
Venezuela 0.78 10.5% DB6d
Iraq 0.37 5.0% DB7
Colombia 0.30 4.0% DB4a
Kuwait 0.30 4.0% DB4a

Source: Dun & Bradstreet Data

Running to Stay in the Same Place

Despite horizontal drilling, fracking, and the rest of the tight oil revolution, America is running to stay still. A rebound in imports of the sour, heavy crude US refiners still need has thrust the US import schedule back towards heavy, sour producers Canada, Venezuela, and Saudi Arabia.

Accordingly, US import needs are still overshadowed by the difficult social and political transitions of OPEC producers such as Venezuela and Saudi Arabia. Meanwhile, the concentration risk implicit in relying on a smaller number of producers is rising. The Herfindahl index of oil-exporting countries’ share of the US market has risen steadily since 2011, as a few lead producers increasingly dominate shipments to the US.

Saudi Arabia especially remains a lodestone for US country supply risk. It has been almost a generation since Saudi Arabia, now rated DB3b, was rated DB2b in the late 1990s, and its population is now 60% larger.

Embroiled directly, by proxy or financially in regional conflicts, it has become the fifth-largest military spender in the world. Its involvement in Yemen, Syria, and Iraq, and ultimately in Bahrain and Egypt, could bring unpredictable levels of political or military blowback, make its foreign financial and military commitments a burdensome drain, and stress its own internal sectarian dynamics.

Dun & Bradstreet is among those who rely on the UN Comtrade database (United Nations Commodity Trade Statistics). D&B paired data from the UN Comtrade API with our own proprietary country-risk indicator, specifically for Harmonized System commodity code 2709 (crude petroleum).

The result is a treasure trove of information on the world’s most widely traded commodity. In particular, D&B is using the data to better understand the political risk of a country’s oil supply, weighted by oil volume, and the country risk of each supplier.

Isaac Leung is a senior economist on D&B’s Global Data, Insight & Analytics team. Based in Marlow/United Kingdom, he covers China, India, and other parts of the Asia/Pacific region as a contributor to D&B Macro Market/Country Insight Products. His areas of interest include maritime economics. He has degrees from Cambridge University and the London School of Economics.  

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