While the United States is the world’s largest producer of oil, it is also the world’s largest gas guzzler.
The cost of this valuable resource has risen due to inflation caused by supply chain issues and Russia’s war in Ukraine. In addition, Hurricane Ian forced offshore producers in the United States to reduce production.
And now, the head of Saudi Arabia’s state-owned oil company has issued a dire warning that prices may soon skyrocket due to the country’s “extremely low” capacity.
That means Americans should brace themselves for a very expensive winter.
However, with President Biden set to release 10 million barrels of the country’s “oil piggy bank” to the market next month, many Americans may be wondering why not just keep that supply on hand to keep the lights on here.
At $75 or more per tank, it can be discouraging to see domestic oil leave U.S. ports faster than foreign oil arrives. But this is a decades-old problem, and the only thing that has changed is the nature of the crisis.
Since 2018, the United States has been the world’s leading producer of oil (including crude, other petroleum liquids, and biofuels). It’s not even close, according to the US Energy Information Agency.
According to the EIA, the United States produced 18.88 million barrels per day in 2021, which is about 10 million more than Saudi Arabia (10.84 million) and Russia (3.84 million) (10.78 million). Keep an eye on
The EIA also notes that the United States is the largest oil consumer, using 20.54 million barrels per day, or 20% of global supply, and is far ahead of second-placed China (14.01 million). According to the EIA report, the United States imported 7.86 million barrels of oil per day last year.
So, if America produces roughly the same amount of oil as it imports, and interest in renewables is increasing, shouldn’t it be true that the United States would be less reliant on foreign oil, and that energy price worries would subside because domestic stocks would be more than adequate?
Not by any means.
The reasons for the import/export disparity are actually quite simple. One of the most important is that the cost of extraction is usually lower in other countries.
In a 2020 analysis, Rystad Energy, a private energy research firm, discovered that Middle Eastern oil fields have the lowest production costs in the world, at $31 per barrel. Deepwater oil produced in the United States was $43 per barrel, while fracking oil was $44 per barrel.
Prices are frequently linked to how countries view the environmental, economic, and geopolitical implications of their oil.
Some issues are more pressing than others. Russia, for example, is widely perceived as using oil to gain concessions for its invasion of Ukraine.
President Biden eventually signed a ban on Russian oil imports in response to the Russian invasion, but it’s unclear how much the ban has deterred Vladimir Putin. Europe now faces new uncertainty about access to critical Russian oil in the run-up to winter.
This is a major challenge for the United States, where much of the country’s refining capacity is designed to handle heavy, difficult-to-refine crude imported from the Middle East and elsewhere. That capacity in the United States was not intended to refine the light, sweet crude that characterizes the flush oil fields of Oklahoma, Texas, and elsewhere.
According to the American Petroleum Institute, shifting US refining capacity to light crude could cause enormous market upheaval and jeopardize massive existing investments.
Attempts to close the gap have almost always failed, often due to environmental protests or other political realities. Most people believe that the current situation will not change until new refining capacity is added or existing capacity is upgraded to handle what the United States produces. Such a shift would be extremely costly.