By Conrad Negron
Global oil production is concentrated among a handful of giant producer countries and about a dozen more which produce more than 1 million barrels a day, according to the U.S. Energy Information Administration.
For 2013, the U.S. averaged 7.45 million barrels per day of crude oil production, third behind Russia and Saudi Arabia.
However, U.S. production has been surging thanks to fracking technologies that free up oil trapped in shale formations. Total U.S. crude oil production averaged 8.9 million barrels per day last October.
For 2015, the EIA expects U.S. crude oil production to average 9.4 million barrels a day. That would be the highest annual average crude oil production since before the first OPEC oil embargo in 1973.
The recent abrupt slide in oil prices being celebrated by American consumers is a two-edged sword that could complicate U.S. geopolitical relations everywhere from Iraq to China.
The price slide gained speed last November as OPEC, led by Saudi Arabia, decided not to cut production. I think they really are quite angry that we are getting our fair market share today.
Although oil prices have been hammered for the last three months, my long term outlook hasn’t changed. The fact remains that oil, coal and natural gas remain our predominant form of energy. On a global scale, fossil fuels still make up 86% of primary energy production.
Regardless of when oil prices begin to rebound, one thing we can count on is that the U.S. will continue to shake-off its addiction to Middle Eastern oil. As I just mentioned, it’s going to come down to increasing domestic production and/or relying on Canadian imports. Granted, we won’t be able to make up the six million barrels per day we need to walk away from OPEC, but that certainly doesn’t mean we won’t do what we can.
The bottom line is that the producers are going to be back on top again, and sooner than you might imagine. Energy companies have been slapped hard for the last three months. This means there are a ton of quality companies that investors can pick up at a discount. I prefer to stick with the drillers that have the property and experience to extract our future oil supply.
The U.S. needs to get serious about reducing the demand for foreign oil. The steeply rising demand for oil today means that any disruption in petroleum supplies immediately causes oil prices to rise. Political upheavals (not just war), terrorism, weather (such as hurricanes shutting down production in the Gulf of Mexico), supply and demand factors, and refiner and pipeline outages all greatly influence what goes on at the trading floors on Wall Street and at other markets around the world. I believe we ran out of $2 oil in 1973, then $8 oil, then $15 oil in 1985, then $25 oil and NOW we have run out of $50 oil.
When it comes to investing, smaller is better! The smaller independent energy companies discover over 65% of all oil fields, not the major oil companies. The majors have left behind thousands of smaller oil fields, which are now becoming valuable high producing resources for the small independents. There will be only an 8 to 10 year window of opportunity for those to create great wealth before we will have sufficient new larger reserves.
Conrad Negron
Host of “Lets Talk Money”
Listen at www.conradnegron.com
