The latest report from the International Energy Agency (IEA) finds American oil production at its highest level in 50 years and projects that it will surpass that of Saudi Arabia and Russia in 2018.
“This year promises to be a record-setting one for the U.S.,” the IEA said, predicting “explosive” growth on tap for the American oil industry.
Bloomberg News notes a fascinating aspect of the coming U.S. oil boom: it is partly driven by measures OPEC put in place to deal with falling oil prices, which were driven down by a previous surge in American production and the resulting “oil glut.”
The Organization of Petroleum Exporting Countries (OPEC) worked with Russia, an allied non-member, to cut production and reduce oil inventories so prices would climb. It was not easy to do, especially since Iran was eager to get back into the market after the lifting of sanctions against it, but OPEC finally managed to bring oil prices up to a three-year high, which evidently combined with the collapse of Venezuelan production to inspire even greater American production.
The IEA noted that American producers were also driven to cut costs and implement new efficiency measures during the recent oil price collapse, which will leave them better positioned to handle a new round of price drops as supply increases.
“The big 2018 supply story is unfolding fast in the Americas. Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico,” the IEA said, predicting that most of the 1.3 billion barrel per day expansion in global markets driven by a recovering world economy will go to OPEC’s rivals.
The U.S. shale oil market is such an astounding success that Saudi Arabia is considering investments in Texas to get a piece of the action. In fact, the much-anticipated sale of stock in the Saudi national oil company, Aramco, might be employed to finance investments in the American shale industry. Among other things, this would allow the Saudis to use natural gas for their own domestic electricity needs, freeing up more crude oil to export.
Bloomberg notes that OPEC’s own analysis is considerably more optimistic than the IEA, but cites a Commerzbank AG assessment that the International Energy Agency report is more “realistic” because OPEC is underestimating the supply from other producers. Some analysts speak of a new U.S. boom to rival the great fracking boom.
OPEC is reportedly adjusting its predictions to better account for increased American production, giving rise to concerns that the deal worked out by OPEC and Russia to cap production is on the verge of falling apart.
“What we are trying to understand is the responsiveness of the U.S. shale producers. And because of the dynamism of the industry, the innovation and the vast number of players in that space … to some extent, we are in uncharted waters,” Neil Atkinson of the IEA told CNBC on Friday.
“The current abundance has erased memories of 1973 gas lines, which raised pump prices dramatically, traumatizing the United States and reordering its economy,” the Washington Post writes.
For those who retain such memories, news of OPEC reeling beneath the unstoppable onslaught of high-tech American oil production and Saudis shopping for gas in Texas is both astonishing and delightful. Not many people in the Seventies saw this coming. We have gone from President Barack Obama raving about phantom oil speculators, and telling devastated consumers to daydream about algae-fueled cars as they struggled to fill their gas tanks, to environmentalists arguing that we no longer need the oil beneath the Alaskan National Wildlife Refuge to achieve the long-sought goal of American energy independence.
Frank Verrastro of the Center for Strategic and International Studies made an interesting observation to the Post, saying, “For years and years, we thought we were running out of oil. It took $120 for a barrel of oil to make people experiment with technology, and that has been unbelievably successful. We are the largest oil and gas producer in the world.”
Compare that to what has become of Venezuela, and savor this amazing triumph of capitalist ingenuity.