It's time to increase oil production.
That's what G-7 finance ministers — representatives from the United States, Canada, Japan, the UK, Germany, France, and Italy — told oil-producing nations this week.
The price of oil has been rising: Crude oil on the New York Mercantile Exchange (NYMEX) has been hovering around $96 a barrel for the past two weeks. Brent crude has been over $100 for the last seven weeks. It's been over $110 for the last four.
Of course, oil consumers are eager to reverse the upward trend.
A recent statement released by the G-7 said:
The current rise in oil prices reflects geopolitical concerns and certain supply disruptions. We encourage oil-producing countries to increase their output to meet demand.
Ah, if only it were that simple...
The United States did slow production this week, taking 95% of Gulf oil production offline. But this was just a temporary halt due to Hurricane Isaac.
Meanwhile, crude oil stockpiles unexpectedly increased by 3.78 million barrels, bringing the total to 364.5 million.
U.S. imports also increased last week — by 1.29 million barrels per day.
We now import 9.5 million barrels daily.
It's speculated that this could have been in anticipation of this week's storm. But that's not necessarily fact...
Either way, it's the most the U.S. has increased crude imports since December.
And even if the nation does increase production, it won't offset those imports.
Last year U.S. crude production was at almost 5.7 million barrels per day. That was a rise of 300,000 barrels per day from the year before (and merely a percentage of the imports added last week).
This situation is not unique to the United States. Other oil-producing nations can't compensate for the global slump, either.
Take a look at this chart of OPEC crude oil production:
Algeria's production has decreased by nearly 200,000 barrels since 2007. In 2011, production in Angola, Ecuador, Libya, and Venezuela (not visible) was down from four years before.
Sure, global production was up a little over 100,000 barrels per day... but not before falling almost 1 million barrels per day between 2008 and 2009.
Oil is getting harder to reach.
Nations are drilling for “oil equivalent” instead of actual crude.
And the G-7 is calling for more production because there just isn't enough.
Leaders of the G-7 have also requested that the International Energy Agency release oil from its strategic reserves. And the Obama administration indicated it was ready to tap the U.S. Strategic Petroleum Reserves if necessary.
Yes, Hurricane Isaac shut down Gulf production — but only temporarily. That's not enough to call on the IEA's strategic reserves.
So, what's really going on with oil?
It would appear, dear readers, that there isn't enough to go around. Crude is past its peak.
But the leaders of the oil-producing nations and the G-7 aren't going to tell you that.
They'll tell you their “oil equivalent” is basically the same thing. They'll tell you we need the strategic reserves... but only for now. And they'll tell you politics is the only reason prices are up.
And while some of these reasons are legitimate, they're not the main culprit.
The United States must find a way decrease its foreign dependence.
Let's be honest; we're not really on great terms with OPEC nations. And the more we align ourselves with them in the name of our own energy security, the worse off we'll be.
We have to develop what we can here at home.
The truth is the U.S. does have its own crude. At the bottom of old oil wells, there's still plenty of oil waiting to be produced...
The technology to recover these resources just hasn't caught on.
But this enhanced oil recovery technique will.
It's just a matter of time, once the politicians touting the importance of U.S. energy independence actually realize how important it is...
Energy investors will want to get in now — while everyone still insists the world has enough oil.
Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.
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