U.S. oil and gas production will continue to surge on, breaking records on the regular; that’s nothing new. But the U.S. economy and oil prices will be affected by factors way beyond American borders as time marches on, even as the U.S. becomes more self-reliant.
The truth is, at least in the short-term, global oil markets still have a profound effect on what happens here in the states. Despite domestic oil security that improves daily, international prices and foreign markets are volatile, and the U.S. feels the wrath.
While the U.S. economy’s dependence on foreign oil has fallen 60 percent since the 1970s, America still consumes more oil than China, Japan, and Russia combined. And this heavy reliance on foreign oil leaves the U.S. vulnerable to ever-fluctuating international oil prices.
The new Oil Security Index released Monday reports that the U.S. consumes 1.7 gallons of oil daily per capita, putting it among the top countries in the index. This tells us that no matter how much boom we’ve got going on over here, the U.S. is still unlikely to meet its own energy needs – at least in the short-term.
Improvements in drilling methods like fracking could eventually change that, but don’t expect it to happen anytime soon.
The Oil Security Index shows that oil security cannot be based on production alone. While the U.S. is set to become the world’s biggest producer of oil and gas this year, it still must focus on a global outlook.
Any threat to foreign supplies and prices will create an aftershock that eventually will hit the U.S.
Oil has a vital impact on the global economy, and it accounts for 33 percent of energy consumption – more than any other single energy source.
For that reason alone, the U.S. is more prone to disruptions because it relies on oil more heavily than other countries. Although the world is becoming more developed, many nations still consider cheaper fuels like coal to be their primary source of energy – so much so that coal is expected to overtake oil as the world’s number one fuel by 2020, according to Aljazeera America – even though major coal producer and consumer China recently banned coal-fired power plants in its main cities to combat its own pollution.
The Oil Security Index, probably the single best evaluator of oil prices and how they’re affected by global markets, is an analytical tool developed by Securing America’s Future Energy (SAFE) in association with Roubini Global Economics (RGE). It helps us measure and compare relative oil security around the world using 13 different countries.
The index ranks each one of the following countries: Australia, Brazil, Canada, China, Germany, India, Japan, Mexico, Russia, Saudi Arabia, South Africa, the U.K., and the U.S.
Rankings are based on several metrics of measurement. A country’s ranking accounts for its structural dependence on oil, the security of its supplies, and its exposure to changing oil prices.
Of all 13 countries, the U.S. ranked fifth overall, behind Japan, the U.K., Germany, and Canada.
The index also shows us how an individual country can affect another’s position. Saudi Arabia, who ranked last at No. 13, is the world’s second largest oil exporter to the U.S. and the current leader in production.
For years, Middle East oil has been able to dictate oil prices, something the U.S. will have to leverage as domestic production increases.
If we look outside of the index, even unrest in places like Nigeria and Libya can have detrimental effects on global markets with the threat of supply disruptions.
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The bottom line: we as Americans can’t put ourselves in a bubble.
We’ve got a terrific thing going with the modern energy boom, and it’s getting bigger every day. It will eventually do lots of good for the U.S. economy and even global economic growth.
But we still need to consider oil around the world and how different markets are reacting.
In the past three quarters, there have been clear signs that U.S. oil security is strengthening as production and efficiency improves. And all this is happening while oil prices are historically high.
Things are better this year than last. And most likely, they will be even better next year, and the year after… And that’s great news for the U.S. economy.
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