In recent years, investors have witnessed the U.S. become a dominant force in the crude oil space, thanks in part to a development in technologies like fracking as well as more pipelines distributing the energy resource around the nation. Currently, the U.S. produces roughly 11.1 million barrels per day, and in 2012 the country exported more than 1.17 billion barrels around the globe. As global demand for the U.S.’s sweet crude oil increases, other producers have started to feel the pressure of the competition and increasing stockpiles of crude. As such, regions like Europe have started to look elsewhere to sell their mounting surplus of oil and gasoline [for more energy news and analysis subscribe to our free newsletter].
Europe’s Dwindling Demand
Europe’s oil market has suffered significant setbacks in recent years, mostly due to high operational costs, outdated technologies, and a struggling domestic economy. The continent has seen a slew of refineries shut their doors over the last five years, and their market share in other regions has taken a steep hit as the U.S.’s more efficient oil producers and refiners step in to fill the gap. Between 2007 and 2012, U.S. exports to Europe doubled, even as demand in the region dwindled. As well, Europe’s exports to the U.S. tumbled more than 20% this year alone [see How To Profit From Record U.S. Oil Production].
In 2012, Europe’s total oil supply totaled 3.9 million barrels per day, a steep decline from the previous year’s 4.2 million figure. Europe’s consumption has also decreased, slipping from 16.1 million barrels per day in 2008 to 14.4 million in 2012. With less demand and steeper competition, Europe now finds itself with a severe supply glut.
Europe Looks to Africa
In an effort to dispose of the region’s mounting oil supplies, European oil refiners have turned their attention to one of the world’s last growing gasoline markets: Africa. Over the last few years, the continent’s oil consumption has not changed much – ranging from 3.1 million barrels barrels per day annually to 3.3 million. Analysts, however, project that African gasoline production will rise 65% by 2020, as the population in West and North Africa becomes wealthier [see A Deeper Look at South Africa's Commodity Industry].
Since 2000, Europe has already been increasing its exports to the region; just over the last decade, European exports skyrocketed from 2.6 million metric tons to 10.9 million metric tons. Currently, the majority of the oil Europe refines comes from Africa, and almost 85% of Africa’s gasoline demand is satisfied by European refiners.
And while Europe looks to further expand its presence in the region, the U.S. has already begun exporting gasoline to Africa, squeezing European refiners. Another potential roadblock for Europe is that several African nations have moved to increase their own refining capabilities – essentially cutting out the process of shipping domestic oil to Europe to have it refined and shipped back as gasoline [see also 25 Ways To Invest In Crude Oil].
For those looking to make a play on Europe’s presence in Africa, here are some of the key oil refiners to keep a close eye on:
- Saras SpA (SRS.MI)
- Total SA (FP.FR)
- Repsol SA (REP.MC)
- OMV AG (OMV – Austria)
Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.
Disclosure: No positions at time of writing
