Hengel: Will U.S. Return to Begging for Oil?
Gasoline prices are below $2 a gallon in much of the country and the average price for a gallon of regular this year is expected to be at the lowest level since 2004. Happy Days are here again for America's motorists. But for how long? And at what cost?
The cheaper fuel that is boosting sales of SUVs and leading to record gasoline demand is also increasing global dependence on the Middle East for oil. The International Energy Agency (IEA) highlighted recently that the Middle East now accounts for 35 percent of the world's oil production - the highest level since 1975. The slump in petroleum prices since late 2014 has crimped production in higher cost areas, especially the U.S. Investment in exploration and production has fallen off a cliff. The longer prices stay near current levels the greater our reliance on the Middle East will become.
Some argue that the advent of U.S. shale oil, which added 4 million barrels a day to U.S. supply from 2011-2015, along with tougher fuel economy standards and more electric vehicles on the road means U.S. "energy independence" is at hand and that we may never see $100 oil again. Don't bet on it. U.S. oil production is down over 1 million barrels a day over the past year and imports are growing again. In 2015, U.S. net oil imports dropped to only a quarter of U.S. consumption, the lowest level since 1970. This year, however, we will import over 30 percent of our oil and more next year. U.S. production could jump if prices rise, but not enough to offset reduced output elsewhere in the world plus growing global demand. Some predict the world could be short of oil by 2020 with prices escalating again. We have seen this movie before...