Will shale oil protect Washington from expected price hikes?

Oil markets largely ignored the fallout from tensions between Iran and Israel, and during the days fears associated with those tensions appeared “overblown.”

Despite the disruption in the Strait of Hormuz, this neglect of oil markets seemed noticeable.

This relative “quietness” in market reactions is due to “shale oil”. According to a report in the British newspaper “Financial Times”, “How does shale oil protect the US from the next rise in oil prices?”:

• The lull in crude oil prices in the face of this turmoil is due to events 7,000 miles away in the shale oil fields of North Dakota and West Texas, where drillers are leaving global markets for U.S. oil.
• “Shale oil has redrawn the map of global oil in a way that most people don't understand, not only has it changed the balance of supply and demand, but it's changed the geopolitical balance and the psychological balance,” S&P Global Wise said. President and Pulitzer Prize-winning energy historian Daniel Yergin said.

Notably, two decades ago, the United States produced about 7 million barrels of oil per day and consumed 21 million barrels.

Gulf countries such as Saudi Arabia and Kuwait, which send oil through the Strait of Hormuz, are important foreign suppliers to the United States.

The United States now produces approximately 20 million barrels of oil per day, roughly equivalent to consumption.

The US became a net oil exporter for the first time in 2019.

The newspaper quoted analysts as saying:

• The strategic benefits are significant even for the White House, which wants to transition from fossil fuels to clean energy.
• The shale oil production boom has cushioned the impact of OPEC's output cuts over the past two years and has allowed President Joe Biden's administration to impose sanctions on suppliers such as Venezuela and Russia while tightening restrictions on Iran without fear of higher oil prices.

Partial protection

From London, energy economist, Nihad Ismail, confirmed in exclusive reports to “Eqtisad Sky News Arabia” website:

• US shale oil provides regional security and helps reduce US imports from abroad.
• However, unless there are large discoveries that can be economically extracted in a few years, global prices cannot be affected.

He pointed out that shale oil production is concentrated in the Permian Basin, Texas, New Mexico and North Dakota, while explaining that there are threats to disrupt oil markets, including those related to the Straits. Hormuz.

• This strait is now a threat if war breaks out in the region
• Such a scenario could lead to price rises of up to $140 per barrel, especially since 21 million barrels pass through the strait each day, which would be a prohibitive supply crunch.
• In this case, shale oil will play an important role in the United States, especially without this oil, American economic activity will be hampered.

Ismail pointed out that U.S. banks are reluctant to invest in new exploration and production projects because of the clean energy transition policy, as well as doubts about the shale oil industry's ability to raise production fast enough to protect production. US economy from shock.

Returning to the British newspaper's report, Continental Resources chairman and shale oil pioneer Harold Hamm was quoted as saying about the change in American shale oil: “It's a big change from what we've been doing. If you didn't have the shale oil revolution in the seventies, oil prices were “at $150 a barrel, you'd be in a very volatile situation, it would be terrible.”

A surge in shale oil supplies to keep factories running in Europe after the war in Ukraine in 2022 helped U.S. liquefied natural gas exports help offset the continent's supply of Russian gas through pipelines.

According to Yergin, the importance of shale oil to oil markets has already become clear in 2019.

Price fluctuations

Amir Al-Shaubaghi, a researcher specializing in oil and energy issues, said in exclusive reports to the “Eqtizad Sky News Arabia” website:

• American shale oil created a new reality in the world and changed the balance of power, different strategies and the reality of supply and demand in the oil market.
• Shale oil has reached its highest levels in the last decade and is very active.
• Shale oil has helped the U.S. impose sanctions on Iran and Venezuela and supply Europe with oil and gas after sanctions were imposed on Russia after its war in Ukraine, in addition to manipulating markets by boosting production and somewhat influencing prices.

He pointed out that US shale oil plays a major role in current oil prices, with the help of new producers outside OPEC, which has helped the US gain more influence in the markets. Protecting the United States from future oil prices, particularly the inability to replenish its strategic reserves; Its reserves have halved to their lowest levels in four decades, particularly as the Russian-Ukrainian crisis has weighed on oil prices.

warning

Experts warn that the United States could be vulnerable to oil shocks — for example, an all-out war in the region, or a new major decline in exports, for example if the Strait of Hormuz is closed — as the global market inevitably drains oil supplies, leading to higher gasoline prices from Beijing to Boston, according to a British newspaper report.

Quoted Jim Crane from the Baker Institute at Rice University: “We are still vulnerable to geopolitics and shale oil production doesn't really solve this problem, but more importantly, we are big consumers and that's our weakness.

The United States represents about 20 percent of global oil demand, partly because of its reliance on large, fuel-guzzling cars.

Shale oil is uniquely vulnerable to price fluctuations, making it an unreliable component of the global oil market, some analysts say.

Strong appearance again

For his part, Wafa Ali, a professor of economics and energy in Cairo, said in exclusive reports to the “Ectisat Sky News Arabia” website:

• Even with rising global oil prices and Biden's policy to free up part of the strategic reserve, the problem is far from resolved…and power is now torn between the policies of Democrats and Republicans.
• At a time when some countries have seen their production cut, shale oil has begun to re-emerge on the horizon as a strong player to offset its losses from the pandemic crisis.
• But in general, the matter has turned out to be outside of US energy policies, which are fraught with the connection to global fuel prices and their effects on the public and private budgets of the US citizen who votes in favor of the economy. Politics, and any other problems disappear before anyone.

Shale executives doubt the ability of drilling companies to ramp up supply fast enough to save the global economy from a sudden oil shock.