The US has become the world’s leading oil producer. According to the US Energy Information Administration (EIA) as of April 2019 it’s production is over 12 million barrels per day on average. This puts them at the top of the list, above even Saudi-Arabia and Russia.
The 2018 sanctions against Iran initially induced a notable rise in oil prices, however, once it became clear that many countries were unable to fully meet their energy needs without Iranian oil, prices began to plummet. The decline started at 75 dollars and continued all the way to it’s $45 support line in December of the same year. In response to this alarming trend President Trump issued multiple calls to OPEC (The Organization of the Petroleum Exporting Countries) asking them to reduce their production immediately. Although there was some pushback at first, both OPEC and Russia agreed to cut their production by 800,000 barrels, which did have a positive impact on price.
Other than the US sanctions, primarily against Iran, there were several other reasons for why the global oil supply has been tightening. Venezuela has become an economic pariah, Libya struggles to stabilize its domestic affairs, making their production unreliable and Sudan had to face a number of violent anti-government protests in April. Although the latter two only contribute a small fraction of global production, their decline is worth pointing out all the same.
At the same time the US oil industry has gained a tremendous advantage from Washington’s economic & foreign policy direction this past year. On the domestic front the petroleum industry has undergone significant deregulation, opening up the path for them to continuously increase production. There have also been heavy investments into the infrastructure necessary to do so. Meanwhile on the side of foreign policy there are the US sanctions against Iran. One can make numerous political arguments for why they’re necessary, yet it’s undeniable that US oil has reaped tremendous economic benefits from it as well. Trump pressuring OPEC & Russia may also have contributed, although hey have just as much of a stake in oil prices remaining high so in the end they may have acted simply out of self-interest. Whatever the case may be, the results are obvious.
The average daily production back in 2016 was only between 8.5 and 9 million barrels approximately. Since then it’s been rising at a rate of one to two hundred thousand barrels every week, until it broke the 12 million barrel mark in 2019. As impressive as that is, looking at the global oil market there’s still more room for growth. The declining supply has both driven up price of and created a demand for US oil. Most importantly, the $20 price increase will considerably accelerate returns on new wells, making their creation costs break even years sooner and thus attracting significant additional investment capital.
It’s worth pointing out that while the US economy has prospered from these policy decisions, there have been some minor drawbacks as well. One of them is the fact that some OPEC have made plans to leave the various international organizations where they consider US influence to have grown too strong. It remains to be seen whether this’ll have any negative long term consequences.
According to the EIA, US oil production will continue to grow until 2020 and could peak at around 13.1 million barrels per day on average. Continued sanctions on major oil producers could grow the market for US oil while still keeping prices in the 55-60 dollar range. Their forecasts also state that the areas with the greatest potential for expanding domestic oil production would be Texas and New Mexico, making them both the new frontier for the US energy sector as well as the ones most likely to benefit the most from the current administration’s policies.