“U.S. proved crude oil reserves hit levels not seen since 1972, surpassing 39 billion barrels in 2014, according to newly released federal data,” Michael Bastasch reports in The Daily Caller. He continues:
America’s proved crude oil reserves have grown for the past six consecutive years, according to the Energy Information Administration, and are now at levels not seen in 42 years. Crude reserves jumped 3.4 billion barrels from 2013 to 2014—a 9 percent increase.
Similarly, U.S. proved reserves of natural gas are higher than at any time in the past 50 years.
Proved reserves are those that can be extracted with current technologies under current prices. Recent increases in proved reserves are due to improvements in hydraulic fracturing and directional drilling, which allow drillers to find and extract oil and gas trapped in shale and other “tight” formations.
The U.S. fracking boom combined with Canadian production from oil sands put downward pressure on global oil prices, “contributing to the price collapse in 2014 from more than $100 in the summer to about $50 a barrel today,” Bastasch observes.
OPEC, led by Saudi Arabia, responded by increasing production, pushing oil prices down even further. Does OPEC simply seek to limit loss of market share to North American producers? Or does the cartel aim to bankrupt U.S. frackers by driving oil prices below their production costs?
At OilPrice.com, Euan Means argues that OPEC can’t win a price war against the United States. In a nutshell: “Low oil prices are a major benefit to the US economy and US citizens, a disaster for OPEC and Saudi Arabia.” Oil’s tumble from $110 in 2013 to $50 a barrel in 2015 cuts OPEC oil revenue in half. The price drop harms U.S. producers too. But whereas oil production accounts for only 2.4% of U.S. GDP, it accounts for 61% of Saudi GDP.
So while $50 a barrel oil is “potentially catastrophic” in OPEC countries, “it barely affects USA GDP at all and bestows major benefits via lower energy costs and a positive impact on the trade balance.”
For example, had oil been $50 a barrel in 2013 instead of $110, GDP in every OPEC country would have been at least 12% smaller, with Saudi GDP 33% smaller.
If the Saudis stick with their current no-cutbacks policy, Mean opines, 2016 will “turn out to be much worse than 2015 for oil producers while the consumers party.”