Understanding the Latest EIA Report on US Crude Oil Dominance – Introduction
On Friday, Energy Information Administration (EIA) released a report on the future of crude oil production. In the report, the agency which tracks oil production and consumption around the world said that the United States was in pace to pass Saudi Arabia and Russia to become the leading oil producer in the next 12 months.
For decades, the United States has had a tough relationship with oil producing countries. See, most of the crude oil comes from countries that have not been friendly to the United States.
Since the U.S is the leading economy in the world, it has depended mostly on crude oil from other countries. Every day, the country sends these countries billions of dollars in exchange for the crude oil. Since these countries are not friendly, they used some of these funds to fund terrorism, which affects the U.S. As an example, the people who perpetrated the 911 attacks were from Saudi Arabia. Another example, Osama Bin Laden was found near an army barracks in Pakistan which is also a major oil trader.
How do you have such a relationship?
To become an oil independent country, U.S oil miners innovated a new technology called hydraulic fracturing. This technology allows the drillers to dig deep vertically, and then branch out horizontally. This allows them to reach oil that is held deep inside the earth’s crust. This is a technology that has not been used anywhere in the world.
To diminish the impact of fracking, the OPEC countries decided to saturate the market with so much oil. This led the oil prices to fall to a low of $26. By doing this, they wanted US drillers to exit the business as fracking was then expensive. What they didn’t know is that US drillers were continually improving their technology to make exploration and drilling a less expensive process.
By the end of the year, the country will be pumping out more than 10.2 million barrels of oil per day. In addition, oil and gas companies will be able to withstand low oil prices. Better still, the country has so many oil basins which means that oil production could continue for more than 100 years. On the other hand, countries in the Middle East are in the last phase of oil production, unless they start investing in technology. A new report by Citi said that Saudi Arabia would run out of oil in 2030. Other countries that are at risk are: Iraq, Iran, Oman, Algeria, Bahrain, Libya and Yemen.
This means that the U.S will be at an advantage when it comes to oil production and enforcing policy measures. Some analysts have suggested that the US should consider placing high levies on oil imports from other countries while removing or reducing taxes from US based crude oil.
In addition, the news that the US will overtake these other countries mean that lower oil prices are coming. Since the US economy does not depend on crude oil, oil producers can ramp up production, which would lead to increased supply. In return, this would lead to lower oil prices which would negatively impact the oil producers from the Middle East and Russia.