Crude oil prices seem stuck in a holding pattern as the US government bangs the drum for greatly increased energy production at home.
Both traded lower than a month ago – on 20 January, Brent stood at $65.20 while WTI changed hands at $58.76.
“Number one producer”
Three months ago, Brent traded at $60.91 on 19 November, while WTI sold for $57.77 Going back a year, Brent was selling at $66.45 on 19 February while WTI was worth $56.94 on 27 February.
A number of factors are pulling the price in different directions. Fears of an imminent global recession, or at least a significant economic slowdown, have a dampening effect on the price.
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On the other hand, production curbs by the 14-nation cartel, the Organisation of Petroleum Exporting Countries (OPEC) and sympathetic non-member oil producing countries, have helped support prices.
But one of the biggest factors weighing on the value of crude is the transformation of the United States into a major energy producer. Of course, there was always oil production in America, and it provided the foundation for the fortunes of the likes of John Rockefeller.
However, the scale and speed of today’s expansion is fundamentally changing the energy landscape.
One bank brought down
President Donald Trump, speaking earlier this year, said: “Thanks to our bold regulatory reduction campaign, the United States has become the number one producer of oil and natural gas anywhere in the world, by far.”
US Energy Secretary Dan Brouillette said: “Under President Trump’s leadership, it is innovation, not regulation, that drives our nation’s energy success. America has become energy independent this year, leading the world in oil and natural gas production as well as carbon emissions reductions, notably surpassing every Paris Accord signatory.”
He added: “While exporting LNG [liquefied natural gas] to 37 countries across 5 continents, we are sharing our energy bounty with our allies around the world, and look forward to building upon our progress in the months to come.”
This is a big change from the second half of the 20th Century, when America’s economy was heavily dependent on oil imports and was thus vulnerable to disruption of supplies of the sort seen in the two “oil shocks” of 1973 and 1979. In light of this, US involvement in Middle East affairs was routinely criticised as being nothing more than “wars for oil”.
Meanwhile, at home, elaborate government incentives were put in place to encourage domestic exploration and production. Independent producers sprang up to take advantage of them, a world captured in the television series Dallas.
In real life, matters proceeded less happily, and several banks, responding to encouragement from Washington, made unwise loans to oil and gas explorers. One, the venerable Continental Illinois, was brought down and at least one other major institution tottered.
But now, there is no sign that energy lending is anything other than a solid bet.