How OPEC Miscalculations Paved the Way for America Oil Dominance

How OPEC Miscalculations Paved the Way for America Oil Dominance

Crude oil is the most important resource in the world. Without it, the world as we know it would not be possible. It has helped ease transportation, which has helped people move from one continent to another within hours. It is used in large scale production of agricultural crops and in the mining industry. It is also used to provide power to millions of people around the world.

Most of the world’s crude oil is found in areas thought to be unstable. For example, Venezuela has the most crude oil reserves in the world. However, the country continues to languish in poverty, mostly because of the socialist regime. In the Middle East too, countries like Iran have vast crude oil resources.

In the past, the United States was a net oil importer. It still is but the amount of crude oil imported has fallen to about 200K barrels per day. Today, the US is the world’s largest oil exporter, having passed Russia and Saudi Arabia this year. The reason for this growth is a process known as hydraulic fracking. This is an oil mining technique that allows miners to drill vertically, and then divert the wells horizontally. They then pump high pressure water and other chemicals inside with the aim of getting ‘hidden’ crude oil.

The journey the US has taken with the goal of crude independence is a long one. In 1973, OPEC members decided to launch an embargo. This was meant to limit crude sales to countries that supported Israel during the Yum Kippur War. This saw the price of crude oil jumped from $3 a barrel to $12. The consensus is that the embargo was a failure because Israel did not withdraw from the Armistice line.

The embargo was followed by the crisis of 1979. This crisis was caused by the Iranian revolution. This crisis saw the price of crude oil jump from around $20 to almost $40.

With the Middle East and Russian countries having a lot of power because of their oil, the United States and Europe had to do something. European countries approached the industry differently. For example, countries like Norway created government companies to extract the oil. They also created large sovereign wealth fund. The Norwegian fund has more than a trillion dollars in assets. The UK on the other hand focused on the private sector.

In this decade, OPEC was at it again. The block saw the potential of the United States and decided to finish its industry before it was too late. To do this, it decided to flood the world with crude oil. This led the price to fall to less than $26. This strategy too failed because the US oil industry was supported by low interest rates. This led them to borrow heavily. This borrowing enabled them to streamline their operations. As a result, they were able to profit even with ultralow oil prices.

Today, OPEC’s role as the world’s most powerful organization on crude oil remains. However, it is being challenged by the United States, which has now become the biggest oil producer.

In recent weeks, the price of crude oil has continued to decline. On Friday, Brent reached a low of $58, after rising a YTD high of $86 in October. OPEC members will met this week for an informal meeting, which will be followed by the ordinary meeting in the following week. Therefore, this could be a good time to buy crude oil.

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