Oklahoma company prepares big oil shipment to China

The repeal of a 1970s ban on US oil exports is turning out to be a pretty sweet deal for one Oklahoma company - sweet as in light sweet crude oil.

Continental Resources Inc, based in Oklahoma City, announced on Oct 17 that it has sold slightly more than 1 million barrels of Bakken crude oil for November delivery to China.

Continental sold the oil to Atlantic Trading and Marketing of Houston, Texas, which will export it. Daily sales transactions of 33,500 barrels per day in November will take place in Cushing, Oklahoma, and ATMI will transport the oil for loading on tankers at Texas ports.

It will be the first overseas shipment for Continental, an exploration and production company whose shares trade on the New York Stock Exchange.

"This is a historic day for Continental and begins a new chapter in our long-term strategy to establish multiple international markets for American light sweet oil," Harold Hamm, Continental's chairman and CEO, said in a statement announcing the deal. "This new normal was created by the American shale energy revolution and the lifting of the 1977 crude oil export ban."

Light is a term for oils with lower densities, and sweet (or sour) refers to their sulfur content. The lower the sulfur, the sweeter the oil. Lighter oil yields the most gasoline and diesel fuel when refined.

Bakken oil is derived from the Bakken Shale formation, one of the largest oil and natural gas plays in the US. It covers more than 200,000 square miles in North Dakota, Montana and Canada.

Shale oil comes from the process of hydraulic fracturing of rock, or fracking, a process that also has been opposed by environmental groups.

In December 2015, the US removed its ban on oil exports, allowing foreign sales to be transacted without a license. Oil exports have grown steadily in the past two years, primarily to foreign refineries configured to process light sweet crude oil.

"We recognized back in 2015, when we were working to lift the export ban, that American light sweet oil would be a good fit for these refineries, especially in Europe and Asia," Hamm said.

"The current $6 discount to Brent (crude oil) should not exist, given the consistency and high quality of WTI (West Texas Intermediate oil), as well as relative shipping costs," he said. "Stabilized US production and increasing industry sales of American crude to international markets will drive down US inventories, correcting much of the recent disparity between Brent and WTI prices."

Dan Dicker, a former trader at the New York Mercantile Exchange and a columnist for oilprice.com, told China Daily that "the disconnect between US crude oil prices and global prices of near $6 a barrel will begin to be equalized. For Harold Hamm ... this is a major victory. It will mean a lot more money for his company."

An editorial by The Oklahoman, the state's largest newspaper, stated: "That Continental Resources will sell more than 1 million barrels of oil to China is welcome news for Oklahoma and validates arguments by those who supported repeal of the longstanding federal ban on crude exports. There's no downside to foreign dollars flooding to Oklahoma companies - and the state economy.

"The ban was enacted in 1975 in response to the Arab oil embargo and had long outlived its usefulness. Continental Resources CEO Harold Hamm was among the most prominent critics of the ban, and now his company is reaping the benefits of its repeal, which means Oklahomans are also reaping the rewards.

"Some will complain about 'our' oil supplies going to China (or any other country), but that misses the point. Chinese dependence upon US energy supplies strengthens this nation's international leverage and makes the importer less likely to take actions that could disrupt the supply chain. There's a reason people for decades bemoaned US dependence on oil from the Middle East."

Contact the writer at williamhennelly@chinadailyusa.com