Over the Independence Day holiday, a report about energy independence may have escaped your attention. Because of fracking, the U.S. has overtaken Saudi Arabia as the world's leading oil producer.
A Bank of America report obtained by Bloomberg News said U.S. crude oil production, along with liquid fuel separated from natural gas, was more than 11 million barrels a day in the first quarter of 2014.
That might seem small consolation to consumers who can barely afford to fill their tanks at current prices, but the Bank of America analyst who compiled the report says it could be worse.
Bloomberg quotes Francisco Blanch, head of commodities research, as saying prices at the pump might be “unaffordable” without the glut of fuel produced from shale rock in the last few years.
The U.S. consumes about 18.5 million barrels of oil per day, according to the U.S. Energy Information Administration (EIA). With continued reduced demand – mainly due to fuel efficient cars – and the growing use of alternative energy sources, U.S. energy independence is not the far-fetched idea it once was.
But for consumers, energy independence is not going to bring a return to “low” gasoline prices. The reason?
High oil prices have actually contributed to the growth of fracking, which is an expensive technology. With oil selling at around $100 a barrel, the process is more profitable than if it sold for half that.
For that reason the Middle East isn't going to shrink from the world's economic stage anytime soon. A recent report by the International Energy Agency (IEA) predicts the Middle East will always be influential because it remains the world's last source of easy-to-extract and therefore, inexpensive oil.
Because of the increased U.S. supply oil prices should have declined in recent years, not gone up. However other nations – OPEC primarily – have cut production to prevent gluts of oil from flooding the market.
Because there is no efficient way to move U.S. oil from Texas and Oklahoma to northeast refineries to be turned into gasoline, those refineries still mostly rely on more expensive, imported oil.
U.S. oil export ban
While the growing U.S. oil output helps meet domestic demand, it does nothing to reduce demand in other countries. U.S. oil isn't exported. There is a law on the books forbidding it (although refined petroleum products can be exported).
After the first oil embargo in 1973, which sent gasoline prices to the unheard of level of 50 cents a gallon, Congress passed a law preventing the export of U.S. oil. At the time the country was producing a small percentage of its energy supply.
As you might expect, pressure is now building to overturn that ban. President Obama has signed orders allowing two companies to begin exporting U.S. ultralight crude, according to The Wall Street Journal. The exports could begin as early as August.
The exports are being justified on the grounds that there simply isn't a place to store it, but there's also an economic component to the move. In its report the Journal notes that prices for ultralight oil have fallen $10 or more below the price of traditional crude oil.
Even though ultralight oil can be refined into gasoline and jet fuel, the Commerce Department is skirting the embargo by reclassifying it as “fuel,” which is not subject to the export ban.
Meanwhile, there are plenty of people in Washington who argue that it is time to lift the U.S. oil export embargo. Sen. Lisa Murkowski (D-AK), in a speech earlier this year, said allowing U.S. oil exports would lead to increased production – arguing the current curbs are limiting output.