- - Tuesday, May 29, 2018

Earlier this month, when President Trump pulled out of the Iran nuclear deal, analysts warned that Iran’s crude oil production and exports could decline, forcing crude oil prices up. Call it “turm-oil” in the energy markets.

For example, Time magazine quotes PIMCO Executive Vice President Greg Sharenow: “The consumers are going to shoulder the bill. The U.S. economy will face headwinds from prices that will come as a natural result of this.”

Maybe, but likely only in the short term.

While it remains to be seen whether this shortage will materialize, one thing remains clear: The recent U.S. gas and oil boom will help fill any impending gaps in the global energy supply.

Thanks to hydraulic fracturing, U.S. crude oil production should grow to help meet or exceed demand over the long term, which means prices will likely stabilize at a reasonably affordable price.

President Obama imposed economic sanctions on Iran in 2012, and it had a major impact on Iran’s ability to produce and export oil, which hurt the country’s economy badly.

According to the Federal Reserve Bank of St. Louis, Iran was exporting about 2.6 million barrels of crude oil per day in 2011. By 2014 that number was down to just over 1 million.

The Iranian nuclear agreement in 2015 relaxed many of those sanctions, and Iran began to increase its crude oil exports — to 1.5 million barrels per day. Today it’s just over 2.3 million.

Thus, if the reimposed U.S. sanctions apply to Iranian oil production — an issue that is as yet undecided — daily global production could decline by 1 million barrels or more.

And then there’s the failed state of Venezuela. The country currently produces about 1.4 million barrels per day, down from about 2.4 million a decade ago. And production continues to decline.

Iran and Russia, and to a lesser extent Venezuela, use their oil revenues to help finance political mischief around the world. So cutting their oil revenues enhances global stability and peace.

The good news is that the United States has the resources and the ability to fill the gap, and rising crude oil prices could serve as the catalyst to do so.

According to the U.S. Energy Information Administration (EIA), “The United States remained the world’s top producer of petroleum and natural gas hydrocarbons in 2017, reaching a record high. Since 2008, U.S. petroleum and natural gas production has increased by nearly 60 percent.”

The EIA points out that U.S. crude oil production has increased nearly every year, leveling off only in 2016 when the price of crude declined to less than $30 per barrel. Saudi Arabia and Russian production have remained roughly the same for a decade.

The EIA goes on to say, “U.S. petroleum production increased by 745,000 barrels per day (b/d) in 2017, driven by a 21 percent increase in oil prices to approximately $65 per barrel.” If U.S. producers, lured by oil at around $70 per barrel, were to continue at that rate of increase, the U.S. would compensate for the Iranian oil cutback in two years. Add one more year for Venezuela’s reduction.

But there’s more. Great Britain, and the European Union in general, has been reluctant to engage in fracking. That may be changing. “Ministers are considering taking fracking decisions in England out of local control and allowing shale gas exploration wells to be drilled without the need for planning applications.”

While this effort seems initially to be limited to natural gas, crude oil likely won’t be far behind.

Crude oil is a commodity. And like most commodities, it’s price will fluctuate, sometimes wildly. But high oil prices and low U.S. production costs mean Iranian and Venezuelan oil production declines can be replaced in the near future.

• Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas.

Sign up for Daily Opinion Newsletter

Manage Newsletters

Copyright © 2020 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.


Click to Read More and View Comments

Click to Hide