Global Oil Supply Glut?
Energy and Capital's Weekend Edition
The oil industry is headed for a major shift.
Earlier this week the Associated Press released an article boldly claiming U.S. oil production could be on par with Saudi production in just a few years' time.
Only days later, the Wall Street Journal ran a piece claiming global oil output would surpass demand in the fourth quarter of this year, effectively sending prices plunging.
Suddenly, it would appear that the world has an abundance of oil after so much time spent worrying about production levels.
What's going on here?
It's not as if the United States has just found some immense brand-new reserve. OPEC didn't stumble upon a magical portal to billions of barrels of oil. In fact, nothing is different than it was earlier this year when our oil plight was getting better, but was still a far cry from fulfilled.
So why the sudden optimism?
A closer look at the AP article reveals it isn't crude oil alone in that 11.4 million barrels per day (bbls/d) production the U.S. is expected to achieve by next year. It's crude and liquid hydrocarbons.
According to the EIA, domestic crude oil production will only grow to 6.85 million bbls/d from this year's estimated 6.32 million barrels. That's not even halfway to meeting total demand levels, which are around 18.7 million bbls/d.
Throw in liquid hydrocarbons, and the total goes up to 10.9 million by the end of this year — still less than half of our total consumption in imports.
Even if domestic production is on par with Saudi Arabia, and even if we could eventually surpass the Saudis' production, U.S. demand is too high to allow us to export, as the title “Top Oil Producer” may imply.
The U.S. may never have enough domestic petroleum to plug up imports for good.
As for the global surplus analysts are expecting for the fourth quarter, that's not likely to be a long-term thing. It actually has to do with a number of situational factors in oil-producing regions.
First off, unrest that has stirred up the Middle East and slowed production in the last few months has started to settle. Second, U.S. production is constantly increasing (this, at least, will likely remain steady for the near future). And finally, we're heading into the winter months, where demand begins to fall as the summer driving season ends.
The reality is oil production is not higher than demand — and it never will be.
We may have a surplus this quarter, but it won't be from any sustainable source.
The one constant is U.S. production. The U.S. has the chance to become a major oil producer.
Even if we will still require imports, and even if we can't ever export, this sort of production increase could cause a shift in the oil industry.
Our imports would go down; OPEC would have to find another oil-thirsty customer; and oil producers — particularly those in the major shale regions — would rake in profits.
Production at places like the Bakken has been increasing monthly, and the mainstream media is catching hold of what the shale boom really means for America...
The U.S. energy scene is set to change — and with it, the global oil industry.
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