Let’s talk about oil.
The U.S. benchmark for crude oil – the West Texas Intermediate crude oil index (WTI) – hit a high point at the end of the first quarter in 2014 at $107.26 per barrel, and a low point in February 2016 at $26.21 per barrel. Last month, WTI stood at $65.70 per barrel.
Various factors can influence the price of oil, including (but not limited to):
- Global economic growth/demand
- The relative growth of the U.S. dollar (the exchange rate)
- Government sanctions (like those affecting Iran)
But when it comes to today’s oil industry, the real focus is the production battle between the U.S. and OPEC. And as you can see from the chart below, the U.S. is making a lot of headway in the production race.
As you can imagine, OPEC is not too pleased about this – our energy dependence is their economic lifeblood.
In fact, the group steadily increased production from 2014-16. We believe it was done to engage in a price war with the U.S. because of our newfound energy independence and the potential of our vast resources. By increasing production, OPEC hoped to drive down oil prices and shut down new drilling projects that would become unprofitable as a result.
The reason this is a big deal is because energy independence significantly increases our political clout and leverage worldwide because we don’t need to buy oil from anywhere else.
To offset the plunge in oil prices, U.S. oil producers cut production in early 2015 and continued cutting through the third quarter of 2016. Prices stabilized, and shortly after, American production increased. It went from 8.5 million barrels per day in September 2016 to about 12.2 million barrels per day in March 2019.
As U.S. producers did that, OPEC decided to throw in the towel and cut production. The group’s combined daily output went from 34.1 million barrels per day in November 2016 to 30.4 million barrels per day in March 2019.
Yes, the price war caused some short-term pain. However, American oil producers withstood it. And in the process, we flipped the script when it comes to energy independence and the accompanying resulting political influence.
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