Rising Oil Prices Lead To More U.S. Production – Commodities Review
Rising oil prices have led to new investment and hiring by U.S. energy companies nationwide. Elevated oil prices tend to increase production as larger revenues offset expenses and increase profits. After years of a ban on offshore drilling, the administration will allow new offshore oil and gas drilling in nearly all U.S. coastal waters. The announcement made in January is expected to resurrect vast energy production from Alaska to the Gulf Coast, ushering in new jobs and billions in capital investment by oil and energy companies.
The enormous refining capacity in the United States has for years had U.S. companies refining imported crude oil from Nigeria, Algeria, Venezuela, Angola and Brazil for use in the U.S. markets. That foreign oil is now being replaced by local oil from North Dakota and Texas, which has a vastly shorter transit distance to refining facilities with less transportation costs.
OPEC deliveries to the United States have shrunken dramatically since the beginning of expansive shale drilling in 2008. In August 2008, OPEC sold the U.S. over 180 million barrels of oil each month. The most recent data of OPEC sales show 91 million barrels supplied by OPEC for the month of November 2017, among the lowest levels of imported oil since 1973.
As U.S. shale oil production has surged, U.S. imports of Saudi oil have plunged to a 30-year low. This change now makes China and Japan far more dependent on the U.S. than on the Middle East. As abundant U.S. production keeps prices low, Russia could see larger losses. Moscow has used oil revenue to finance aggressive foreign intervention from Ukraine to Syria. At this point, both Russia and OPEC are trying to reign in production in order to maintain current price levels. The additional U.S. production, thus yielding lower oil prices, will continue to strain the Russia / OPEC relationship as the U.S. slowly acquires market share from Russia and OPEC.
Sources: U.S. Energy Dept., Bloomberg, IHS Maritime, phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother