BOOM IN NATURAL GAS PRODUCTION SENDS U.S. SHIPYARDS INTO OVERDRIVE

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AP

Boom In Natural Gas Production Sends U.S. Shipyards Into Overdrive

The Great American Energy Boom is having a major ripple effect on the shipbuilding industry, which thanks to a 1920s maritime law, is busier than it has been in decades.

Some ten supertankers are currently under construction at U.S. shipyards, with orders for another 15 in the pipeline. That may not seem like a huge number, but considering there are only about 75 such tankers plying American ports now, it represents a genuine boat-building boom.

“We haven’t seen something like this since the 1970s,” Matthew Paxton, president of the Shipbuilders Council of America said to FoxNews.com. “The movement of more oil has built up a real commercial shipbuilding renaissance.”

The renaissance comes despite an economy that continues to struggle. It’s because of a specific sector of the U.S. economy that is also booming: natural gas production. The fuel must be transported, even within the country, either by rail, pipeline or ship. And if it is by ship, the ship must be American-made and American-manned, according to the 1920s Merchant Marine Act, also known as the Jones Act.

Paxton said that it is projected that up to 3.3 million barrels will be shipped out daily from the Gulf Coast by 2020, destined for ports along the east and west coasts, causing huge demand for tanker ships.

“It could be higher as more and more tankers are built,” he said.

With record amounts of gas and oil being extracted from shale by the process of fracking, the U.S. has seen an energy boom in recent years that has proponents calling it the Saudi Arabia of natural gas. Much of the fuel is being exported, but most is staying here, being distributed around the nation for domestic use.

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Energy’s unexpected jobs boom

Energy’s unexpected jobs boom

September 5, 2013: 10:17 AM ET

How America’s oil and gas revolution is helping consumers and workers.

By Daniel Yergin

<> on January 18, 2012 in Dimock, Pennsylvania.

FORTUNE — The rapid rise in shale gas and tight oil in the United States constitutes nothing less than a revolution in oil and natural gas. No longer can there be any doubt about the dramatic change in America’s energy position. U.S. oil production is up 50% since 2008, when we were supposedly slated to run out of oil. Natural gas production has increased by 33% since 2005, and shale gas alone now constitutes about 45% of total natural gas production.

This revolution is not just about energy production; it’s an economic story along several dimensions, whether measured in consumers’ pocketbooks, jobs, U.S. manufacturing output, or America’s increased competitiveness in the world economy. This has occurred amid a half-decade of deep recession and high unemployment. Indeed, without the boost from the unconventional oil and gas development, the U.S. economic picture would have looked even worse over the last few years.

According to a new study from my organization, IHS, entitled “America’s New Energy Future: the Unconventional Oil and Gas Revolution and the Economy — A Manufacturing Renaissance,” the unconventional energy boom increased average household disposable income in 2012 by $1,200 — a figure that is expected to grow to $2,700 by 2020. That boost is mainly the result of two factors. First, households are spending less of their total income on utilities, whether directly for less-expensive natural gas or by lowering the cost of electricity generated with natural gas. Secondly, lower energy costs have led to a reduction in the cost of goods and services within the broader economy.

MORE: 100 Fastest-Growing Companies

Government revenues are also seeing a boost on account of the rise of new energy production. The value chain associated with shale gas and tight oil contributed over $74 billion in additional federal and state government revenues in 2012 — that figure is expected to reach over $125 billion by 2020.

The unconventional energy employment picture is equally impressive. Unconventional oil and gas (this does not include conventional oil and gas) supported 2.1 million jobs in 2012 along the entire value chain. That number is expected to rise to 3.3 million by 2020. These jobs include people working in the shale gas and tight oil industry, in related industries such as oil services and information technology, and people whose jobs are supported by the increase in spending that has flowed through the economy.

These additional jobs are spread throughout the United States. New York State may count itself a holdout with its ban on hydraulic fracturing, or “fracking.” Notwithstanding the ban, almost 50,000 jobs in New York result from shale gas and tight oil activity in other states.

Abundant, low-cost natural gas — brought on by the emergence of shale gas — is also transforming America’s position as a manufacturer. It is boosting companies that make products that this new oil and gas industry needs, such as steel and pipes. It is important on an even larger scale for businesses that rely heavily on natural gas or electricity generated with natural gas — ranging from petrochemicals and fertilizer, to food producers and glass manufacturers. For these companies, low-cost natural gas is a game changer and will stimulate an estimated $350 billion of new investment in the United States over the next dozen years. Such growth would have seemed inconceivable half a decade ago, when the expectation was that American manufacturers — and the entire U.S. economy — would have to depend increasingly on high-cost imports of liquefied natural gas as well as high-cost domestic gas.

The price of energy is, of course, only one component in a company’s investment decisions, along with such other factors as market forces, competition, and regulatory and litigation risks. But energy costs are critical just the same, and have made the United States much more competitive in the world economy. In Europe, natural gas costs three times as much as in the United States; in Japan, it’s more than four times as costly.

Business leaders in Europe are aware of America’s current energy advantage, and they are sounding the alarm. The chief executive of Austrian steel company Voestalpine, Wolfgang Eder, declared that “the exodus” from Europe has already “started in the chemical, automotive, and steel industries.” Indeed, Voestalpine announced plans to build a half-billion-dollar plant in Texas to produce iron that it would ship back to Austria for fabrication into steel. European suppliers will follow their customers across the Atlantic, building new factories in the United States to be near their customers’ new factories.

MORE: America’s historic gusher

This summer, I asked IMF managing director Christine Lagarde what the development of shale gas means for Europe’s troubled economy. “Shale gas and the reduction in energy prices,” she said, is “certainly to the advantage of the U.S. relative to Europe.”

This advantage will be measured in growing exports of manufactured products from the United States — and more jobs. For Europe, this development only adds to its angst. For the United States, this demonstrates the widening opportunity resulting from the rise of unconventional oil and gas.

Daniel Yergin, vice chairman of IHS, is author of The Quest: Energy, Security, and the Remaking of the Modern World.

Posted in: Daniel Yergin, economy, energy, fracking, jobs, Shale gas, The Quest, Tight oil

Shale Grab in U.S. Stalls as Falling Values Repel Buyers

Shale Grab in U.S. Stalls as Falling Values Repel Buyers

The spending slowdown by international companies including BHP Billiton Ltd. and Royal Dutch Shell Plc comes amid a series of write-downs of oil and gas shale assets, caused by plunging prices and disappointing wells. Photographer: Julia

Schmalz/Bloomberg

Oil companies are hitting the brakes on a U.S. shale land grab that produced an abundance of cheap natural gas — and troubles for the industry.
The spending slowdown by international companies including BHP Billiton Ltd. (BHP) and Royal Dutch Shell Plc (RDSA) comes amid a series of write-downs of oil and gas shale assets, caused by plunging prices and disappointing wells. The companies are turning instead to developing current projects, unable to justify buying more property while fields bought during the 2009-2012 flurry remain below their purchase price, according to analysts.

Shale Grab in U.S. Stalls as Falling Values Repel Buyers
The deal-making slump, which may last for years, threatens to slow oil and gas production growth as companies that built up debt during the rush for shale acreage can’t depend on asset sales to fund drilling programs. The decline has pushed acquisitions of North American energy assets in the first-half of the year to the lowest since 2004.
“Their appetite has slowed,” said Stephen Trauber, Citigroup Inc.’s vice chairman and global head of energy investment banking, who specializes in large oil and gas acquisitions. “It hasn’t stopped, but it has slowed.”

Shale Grab in U.S. Stalls as Falling Values Repel Buyers
North American oil and gas deals, including shale assets, plunged 52 percent to $26 billion in the first six months from $54 billion in the year-ago period, according to data compiled by Bloomberg. During the drilling frenzy of 2009 through 2012, energy companies spent more than $461 billion buying North American oil and gas properties, the data show.
Lost Ranking
Prior to this year, oil and gas transactions ranked among the top two in total deal values every year since 2005, except 2008 when they were fourth. So far this year, oil and gas isn’t among the top five.

Shale Grab in U.S. Stalls as Falling Values Repel Buyers
The land grab began more than a decade ago when improved drilling methods and a process called hydraulic fracturing, which cracks rock deep underground to release oil and natural gas, opened up new production in previously untappable shale fields.
The rush accelerated in 2004 as more shale fields in North Dakota, Pennsylvania and Ohio were identified, opening new troves of petroleum and the prospect of energy independence in North America.
As overseas buyers moved in, booming production soon led to oversupplies, and gas prices plunged to a 10-year low in 2012, forcing companies to write-down the value of some of their assets. Companies were also hurt when some fields thought to be rich in oil proved to contain less than anticipated.
Write Downs
That shortfall caused Shell to write down the value of its North American holdings by more than $2 billion last quarter. Shell, based in The Hague, paid $6.7 billion for North American energy assets in seven transactions since 2009, according to data compiled by Bloomberg.
The company told investors this month that it expects its North American oil and gas exploration to remain unprofitable until at least next year. “The major acreage deals are behind us now,” Shell Chief Executive Officer Peter Voser said in a conference call with analysts.
BHP said it would cut the value of its Arkansas shale assets by $2.8 billion. During a May 14 conference presentation, CEO Andrew Mackenzie said capital and exploration spending will “decline significantly” to around $18 billion in 2014, and continue to fall after that.
As companies reassess holdings, they’ve begun curtailing drilling in some fields, selling off lackluster properties and redirecting investments to storage terminals and gas processing plants.
Cash Shortfalls
Firms depending on asset sales to help finance drilling may not have enough money to pay for higher oil and gas production, said Eric Nuttall, who oversees C$70 million ($68 million) at Sprott Asset Management LP in Toronto. That could slow output growth, especially as companies try to avoid taking on more debt.
“A lot of companies have let leverage get out of hand,” he said, speaking about Canadian firms.
Those companies that have to sell assets will likely fetch lower prices, said Fadel Gheit, an analyst at Oppenheimer & Co. Inc. in New York. Producers with the highest debt levels that need cash to fund development, such as Chesapeake Energy Corp. (CHK), of Oklahoma City, are most at risk of having to accept lower offers from buyers, Gheit said in a phone interview.
“People do not sell unless they really need the money to invest in better options,” he said.
Chesapeake Sale
In one of only three oil and gas deals valued at more than $1 billion this year, according to data compiled by Bloomberg, Chesapeake sold 50 percent of its oilfield in the Mississippi Lime formation for $1.02 billion to China Petrochemical Corp. in February.
Jim Gipson, a spokesman for Chesapeake, declined to comment.
International buyers that branched into North America in recent years don’t need to buy anything else — for now, said Toshi Yoshida, a partner with law firm Mayer Brown LLP, which advises on cross-border oil and gas deals. A lot of them achieved their primary goals of obtaining a supply of long-term, dollar-denominated commodities and the technology needed to turn shale into energy, Yoshida said.
“They will stay here for a long period of time,” Yoshida said. “They will make additional acquisitions when the time is right.”
To contact the reporters on this story: Matthew Monks in New York at mmonks1@bloomberg.net; Rebecca Penty in Calgary at rpenty@bloomberg.net; Gerrit De Vynck in Toronto at gdevynck@bloomberg.net
To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

Coal at Risk as Global Lenders Drop Financing

Coal at Risk as Global Lenders Drop Financing on Climate

By Mark Drajem – Aug 6, 2013 10:56 AM ET

Tomohiro Ohsumi/Bloomberg

An employee stands in front of stockpiles of coal inside a storage yard at the Joban Joint Power Co. coal-fired power station in Iwaki City, Japan.

The world’s richest nations, moving to combat global warming, are cutting government support for new coal-burning power plants in developing countries, dealing a blow to the world’s dominant source of electricity.

Obama Unveils Climate Plan Focused on Power Plants 48:10

June 25 (Bloomberg) — U.S. President Barack Obama speaks about his plan to address climate change. Obama, speaking at Georgetown University in Washington, proposed a sweeping plan that sets goals to reduce carbon emissions and bolster renewable energy while also preparing the country for the impacts of a warming planet. (Source: Bloomberg)

Enlarge image Coal at Risk as Global Lenders Drop Financing on Climate

A coal-fired power station stands in the distance behind a disused coal dredger in the town center in Morwell, Australia, on July 25, 2013. Photographer: Carla

Gottgens/Bloomberg

First it was President Barack Obama pledging in June that the government would no longer finance overseas coal plants through the U.S. Export-Import Bank. Next it was the World Bank, then the European Investment Bank, dropping support for coal projects. Those banks have pumped more than $10 billion into such initiatives in the past five years.

“Drawing back means there is less capital for these projects,” Richard Caperton, managing director for energy at the Center for American Progress in Washington, said in an interview. “I don’t expect private capital to move in and fill the void, either, because there is a real risk that these plants will be turned off early.”

Demand for coal in developing nations has taken on increasing importance as the combination of stricter environmental regulations in the U.S., increasing deployment of subsidized renewable resources and a drop in the price of natural gas have pushed utilities to shutter coal plants.

Among the three government-backed lenders, the World Bank has provided $6.26 billion for coal-related projects over the past five years, according to data from Oil Change International. The Ex-Im bank provided more than $1.4 billion to two coal projects, one in South Africa and another in India.

Curb Investments

While the pull back is unlikely to have a direct impact on China, the world’s top user of coal, it could curb construction of new plants in countries such as South Africa and Vietnam and dampen new export markets for coal mined in the U.S., Indonesia or Australia by companies such as Peabody Energy Corp. (BTU) and Alpha Natural Resources Inc. (ANR)

“We’ve never seen a cascading sentiment that coal is not acceptable like we’re seeing happen right now,” Justin Guay, the head of the Sierra Club’s international climate program, said in an interview. “It’s a snowball running downhill.”

Environmental groups such as the Sierra Club are fighting coal plants and coal mines, because coal releases the most carbon dioxide per unit of energy of any major fuel source. Scientists say carbon emissions are to blame for warming Earth’s temperatures, increasing the number and severity of storms and melting polar ice.

Supporters of the fuel source say it’s a low-cost way for poor nations to provide light, refrigeration and air conditioning to their people.

‘Our Backs’

The move by lenders against coal turns “our backs on millions without electricity and chooses not to help them achieve a better standard of living,” said Nancy Gravatt, a spokeswoman for the National Mining Association in Washington, which represents producers such as Alpha and

Arch Coal Inc. (ACI)

Analysts are divided about long-term global coal demand.

The U.S. Energy Information Administration, in a July 25 report, projected world coal use would increase by a third — to more than 200 quadrillion British thermal units a year — by 2040 as developing nations boost its use.

The cut-back in the financing isn’t causing a reassessment of that outlook, said Greg Adams, the team leader for coal at EIA. “The capacity that is going to be affected is going to be limited,” he said.

Gregory Boyce, chief executive officer of Peabody, the largest U.S. coal producer, noted that German and Japanese coal use is climbing as they cut nuclear-power generation.

China, India

“China and India imports have risen year-to-date and are on a pace to increase 15 percent this year to new record levels as the trends to urbanize, industrialize and electrify continue,” Boyce said in a conference call with analysts on July 23.

Goldman Sachs Group Inc. offers a less buoyant outlook.

“We believe that thermal coal’s current position atop the fuel mix for global power generation will be gradually eroded,” Christian Lelong, an analyst at Goldman Sachs in Australia, said in a report on July 24. “Most thermal coal growth projects will struggle to earn a positive return.”

Coal is now used to generate 40 percent of the world’s electricity, and its use has grown more than 50 percent in the past decade, according to EIA. The U.S. is the world’s second-largest producer of coal, after China, followed by India, Australia and Indonesia. China is the world’s top importer of coal as well, followed by Japan, according to the World Coal Association.

1,200 Plants

According to an analysis by the World Resources Institute in Washington, 1,200 coal-fired plants are proposed globally, with more than three-quarters of those planned for India and China alone. If all are built, which WRI says is unlikely, that would add more than 80 percent to existing capacity.

China can finance its projects on its own, and India has only relied on export financing in a few cases. As a result, the recent changes are likely to impact other nations in Africa and Asia, which don’t have the same access to credit. Each group said in some instances it would still finance coal, and activists are worried about those exceptions.

“The implementation of all three of those initiatives is yet to be fleshed out,” Doug Norlen, the policy director of Pacific Environment, which is fighting these kinds of fossil-fuel projects, said in an interview. “These will be huge steps, if properly implemented.”

That implementation is still an open question.

Project Rejected

For example, as part of Obama’s climate action plan released on June 25, the U.S. pledged to end support of foreign coal-fired power plants, unless they are in the poorest nations or have expensive carbon-capture technology. The U.S. Export-Import Bank is only now developing the procedures to implement that policy, and its board will consider those changes in the coming weeks. The lender shot down a bid to finance a coal plant in Vietnam, its only pending application for coal, just three weeks after Obama’s announcement.

Norlen’s group and other environmentalists filed a lawsuit against the Export-Import Bank last week to try to block its financing of coal exports. That support is separate from the policy change Obama announced.

The European Investment Bank set an emission performance standard that would prevent lending to new coal-fired plants unless they also burn biomass. The European Bank for Reconstruction and Development is also under pressure to limit support.

Japan Support

Even after the World Bank said it would help nations transition from coal to natural gas or renewables, it’s still considering support for a coal project in Kosovo.

There’s also the possibility that other lenders, especially export-credit agencies from Japan or China, could step in and replace the World Bank, U.S. and Europe. Japan’s Bank for International Cooperation, its export financing body, has provided more than $10 billion in financing for overseas coal projects, more than any other individual nation, according to the WRI report.

And now China, which wants to export coal-plant technology, may ramp up support as well, said Ailun Yang, the author of the WRI report.

“It is a real concern” that “some of the funding gap for coal-fired plants would simply be filled by the Chinese banks,” she said.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

US Oil and Gas Boom is Bigger Than Majors Can Handle Alone

EARNINGSAugust 1, 2013, 8:14 p.m. ET

Shale-Boom Profits Bypass Big Oil

Shell, Exxon Came Late to the Party, Then Made Massive Investments

By DANIEL GILBERT, JUSTIN SCHECK and TOM FOWLER CONNECT

Billion dollar write downs and falling profits from two of the biggest oil companies could mean a limit to how big oil companies can get. Heard on the Street’s Liam Denning joins MoneyBeat. Photo: AP.

Some of the world’s biggest energy companies are struggling to make money from massive bets on the shale boom in North America, where deposits of oil and gas are proving abundant but not always profitable.

Royal Dutch Shell PLC, which has had a tough time coaxing crude oil from dense rock formations, said Thursday its shale holdings in the U.S. are worth $2.2 billion less than it had previously determined. The write-down helped push the Anglo-Dutch oil giant’s second-quarter earnings down 60% from a year earlier. The company said it would explore selling some of its U.S. shale properties.

More

Heard: Big Oil’s Rodent Problem

Exxon Mobil Corp., the world’s largest publicly traded energy producer, is still feeling the effects of its plunge into U.S. shale gas in 2010, which left it with a big exposure to persistently low natural-gas prices.

Rising expenses and falling oil-and-gas production contributed to a 57% drop in quarterly earnings for the Irving, Texas, company. Its profit per barrel of oil and gas fell 23% from a year earlier.

Shares in both companies declined Thursday, with Shell’s class A shares dropping more than 5% to $64.47 in trading on the New York Stock Exchange. Exxon’s stock dropped a little more than 1% to close at $92.73.

U.S. oil production has soared to levels not seen in decades, and profits at some smaller energy companies have surged. But big international oil companies, which were late to exploit shale rocks, haven’t capitalized on the boom in the same way.

Exxon and Shell have spent billions to acquire companies and drilling rights to shale discovered by others at a lower cost. Their sheer size—Exxon produces nearly as many barrels of crude a day as the entire state of Texas—also makes it harder for them to replace the reserves they deplete and increase their output.

As for shale, “they bought in late in the game, and it’s hit or miss,” said Ken Medlock, senior director of the Center for Energy Studies at Rice University in Houston. “Whether or not it pays off is going to be highly dependent on what happens to commodity prices.”

Along with Chevron Corp., Exxon and Shell are investing at record levels to find and produce energy, aiming to spend a combined total of about $111 billion this year, 8% more than in 2012. They are adjusting to a world in which countries with some of the richest oil deposits—from Iraq to Mexico—have limited their access, adding to the difficulty of expanding production.

Exxon and Chevron are sticking to aggressive goals to increase their slumping production over the next four years, by about 14% and 26%, respectively, from 2012 levels.

But Shell said it would stop setting targets for how much oil and gas it hopes to pump and just focus on profits. “If we are solely focused on a volume-related target, we may make less profitable long-term investments,” Simon Henry, Shell’s chief financial officer, said in an interview.

In Big Oil’s hunt to add to its reserves, North America emerged as a bright spot in recent years. Smaller companies like EOG Resources Inc. and Chesapeake Energy Corp. capitalized on drilling sideways through shale, breaking it up with a high-pressure stream of water, sand and chemicals, allowing oil and gas to flow.

The Energy Information Administration said Thursday that exploration and production companies operating in the U.S. raised their oil reserves by nearly 3.8 billion barrels in 2011, the largest single-year increase since the government starting publishing the data in 1977. The EIA now estimates the U.S. has about 29 billion barrels of oil that companies can recover at a profit, the most since 1985.

Natural-gas reserves also expanded to 348.8 trillion cubic feet, the EIA said, a 9.8% annual jump that ranks as the second-largest increase on record.

The boost in domestic oil production is providing a “major economic benefit” by reducing the amount of crude the U.S. has to import, according to U.S. Energy Secretary Ernest Moniz.

That hasn’t necessarily translated into corporate profits, however.

Shell has tried for months to boost the profitability of its U.S. shale assets. Since U.S. gas prices remain low, Shell said early this year that it would try to shift its North American production toward more profitable oil.

The strategy hasn’t panned out. Finding shale oil turned out to be tougher than finding gas, the company said. Its overall exploration and production operations in the Americas sustained a loss in the second quarter, partly because of higher costs. And, with current oil and gas prices, the business will likely continue losing money at least through the end of this year, Shell said.

Exxon, which spent $25 billion in 2010 to buy shale-gas specialist XTO Energy Inc., said an increase in natural-gas prices in the U.S. last quarter helped increase its domestic profits by 62% to just over $1 billion. But its XTO investment diluted its profits and isn’t making up for the company’s problems increasing oil-and-gas production around the globe; its overall production fell 1.9%, the eighth quarter in a row of year-on-year declines. Profits from producing energy dropped 25% in the quarter to $6.3 billion.

But the steep drop in Exxon’s overall profit for the second quarter was due in part to a tough comparison; asset sales and tax breaks helped drive earnings to a record in 2012.

Chevron, which reports earnings Friday, has taken a more moderate approach to investing in shale resources in the U.S. and Canada. But late Thursday, Chevron said that a subsidiary had acquired drilling rights to 67,900 acres in a shale formation in Western Canada, adding to its holdings there. The company didn’t disclose a purchase price.

—Ryan Tracy contributed to this article.

Write to Daniel Gilbert at daniel.gilbert@wsj.com, Justin Scheck at justin.scheck@wsj.com and Tom Fowler at tom.fowler@wsj.com

Oil Prices Bullish on America

By DAN STRUMPF CONNECT

Crude prices are up 14 percent this year on the New York Mercantile Exchange, despite slowing growth in China and surging production in the U.S. Dan Strumpf has more. Photo: Getty Images.

Economic gains in the U.S. and upgrades to the nation’s energy-transport infrastructure are helping oil shrug off the downturn in other industrial commodities.

Crude prices are up 14% this year on the New York Mercantile Exchange, despite slowing growth in China and surging production in the U.S. They also buck a broader slump in commodities, with the Dow Jones-UBS Commodity Index down 9% this year.

Dan Strumpf/The Wall Street Journal

Transportation upgrades have reduced a glut that had depressed the price of Nymex crude oil, which is stored in Cushing, Okla.

Some investors see potential for more gains. Money managers have the biggest bets on record that oil prices will rise, according to the Commodity Futures Trading Commission, which provides data back to 2006. Net bets that prices would rise have more than doubled this year to 334,094 contracts, from 149,893 contracts at the start of the year, according to the Commodity Futures Trading Commission. Those positions are even larger than those in the months before prices hit a record of $147 a barrel in July 2008.

More

Exxon and Chevron Miss Out on U.S. Oil Boom

On Wednesday, crude oil for September delivery, the front-month contract, rose $1.95, or 1.9%, to settle at $105.03 a barrel on the Nymex. Brent crude gained 79 cents, or 0.7%, to $107.70, on ICE Futures Europe.

Some oil bulls said fears of a disruption to Middle Eastern supplies are keeping prices at a premium. Others are banking on a rise in U.S. oil demand. The U.S. burns more oil than the next three countries combined. That means the small increase in U.S. gasoline demand this summer is making up for a slowdown in China that has sent other commodities plunging.

“The big driver for oil has been the strength in the U.S.,” said Lee Kayser, who helps oversee $1.9 billion in commodity investments as a portfolio manager at Russell Investments in Seattle. Mr. Kayser invests across commodities but has tilted more heavily toward oil this year. “China is deteriorating, Europe is still problematic, but if the U.S. continues to chug along…things are relatively positive for oil.”

When it comes to oil demand, the U.S. is the biggest engine driving prices. U.S. gasoline use alone, nearly nine million barrels a day, comes close to total demand for crude in China, the second-biggest consumer. The Energy Information Administration projects China’s demand will average 10.58 million barrels a day this year.

And U.S. demand is starting to increase after stalling for years while the U.S. economy grinded through its slowest recovery since World War II. The government said Wednesday that U.S. gross domestic product expanded 1.7% in the second quarter, though growth for the first three months of the year was revised downward. American motorists are using 3.7% more gasoline than they were this time last year, according to the EIA.

The additional demand is coming just as China’s thirst for oil is tapering off. Economists predict China’s economy will expand at its slowest rate since 1990. Oil imports fell 1.4% in the first half from a year earlier, the country’s General Administration of Customs said recently.

China’s darkening outlook has caused investors to sell many other commodities. But while the country’s expansion was a force behind record oil prices in 2008, it makes up only 11% of global demand. By comparison, China uses 40% of the world’s copper. The metal has declined 14% this year.

“A lot of other markets are more susceptible to China’s slowdown…in our minds, oil is the least exposed,” said Greg Sharenow, portfolio manager at Pacific Investment Management Co.’s $27 billion Commodity Real Return Strategy Fund.

Mr. Sharenow said his firm has been betting that U.S. oil prices would rise in relation to Brent, a global benchmark produced in the North Sea.

U.S. prices got a boost this year as new pipelines and railroad routes connected refiners with brimming Midwestern inventories, reducing a glut that had depressed the price of oil traded on the Nymex, which is delivered in Oklahoma.

But some investors said the price gains may have run their course.

Now that Nymex prices have caught up to Brent—at one point this year, the price of Nymex oil was $23 below that of Brent—it may have trouble rising further, some investors said. Brent is down 3.1% this year.

“I think the gains have more to do with the direction of pipes,” said George Zivic, who oversees $450 million as commodity portfolio manager at OppenheimerFunds Inc. “I would be surprised if we can, at 2% growth, maintain anything north of $95-a-barrel oil.”

Still, even if U.S. demand slows, the Middle East remains the world’s biggest supplier of oil, and turmoil in Egypt and Syria is keeping a floor under prices. Moreover, the Organization of the Petroleum Exporting Countries has indicated it could cut output for the first time in five years when the group meets in December.

Write to Dan Strumpf at daniel.strumpf@dowjones.com

A version of this article appeared August 1, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Crude in U.S. Bucks Commodities Slump.