The war to gain our energy independence was fought with blood, treasure and American ingenuity, but that doesn't mean we get to keep it.
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Earlier this week, the Energy Information Agency (EIA) reported that the U.S. will now return to importing more crude oil and petroleum products than it will export for 2021 and 2022. That is big news considering the agency reported just a week ago that the U.S. didn’t import any Saudi Arabia crude last week for the first time in 35 years.
|USO||UNITED STATES OIL FUND L.P.||35.19||-0.58||-1.63%|
American energy independence was thought to be an impossible dream but with the emergence of the shale oil and gas revolution, it became a reality.
In fact, because of the demand hit from the COVID-19 pandemic and the promise of more regulations from the Biden administration, the country seems willing to relinquish our energy dominance. U.S. shale oil and gas producers are in retreat and OPEC's sway on the price of oil has pushed prices for West Texas Intermediate crude to the $53-per-barrel level.
With Biden promising more regulations and a transition off of oil, our days of energy independence may be already behind us. This is a major blow considering what it took to achieve the independence that now too many people are taking for granted.
In the 1970s, the Arab oil embargo made us realize how our economy could be held hostage by foreign oil producers that did not have our best interests at heart. The rise of the OPEC cartel was a national security threat and the U.S. had to change its ways or was destined to be put in economic slavery and be subject to the whims of foreign oil producers.
President Nixon launched “Project Independence” to get off foreign oil and that goal was finally realized just a few years ago. The U.S. became a net petroleum exporter in September 2019 and that allowed the US economy to thrive as low energy prices helped put more money in the pockets of consumers and allowed business to thrive.
The rise of the U.S. energy producer took away a lot of power from OPEC, which could no longer just cut production to manipulate prices higher because if it did, the U.S. producer would rise and fill the production void, costing the cartel market share in the global oil market.
Today, the OPEC cartel has less to fear from the U.S. producers as the Biden administration pledges to restrict the U.S. energy producer's ability to frack for oil and gas. This will be a major change from the Trump years when President Trump would tweet and threaten OPEC and its leader, Saudi Arabia, causing it to reverse course in cutting production. Saudi Arabia feared the tweet, and OPEC and the oil market responded.
OPEC no longer fears the tweet because Trump cannot tweet and because it knows that Joe Biden is not that averse to higher oil and gas prices. The higher oil and gas prices go, the more expensive and less efficient alternative sources will look more attractive. Biden unlikely will interfere in Saudi Arabia's quest to drive up oil prices and it's already showing that it wants to take advantage and control of global oil prices.
With Trump on his way out, Saudi Arabia unilaterally cut production by 1.0 million barrels per day in the months of February and March. The move enriched the country and has been a major factor in crude oil's most recent seven-day oil price rise that drove the price back over $53 a barrel. The value of Saudi assets will rise, enriching the Kingdom while U.S. producers will not be able to fully take advantage of the price increase because of uncertainty about regulation in the future and fears about capital.
U.S. producers racked up a lot of debt during the COVID-19 demand crash and now banks are more reluctant to lend them money -- not only for economic reasons but because of political correctness and pressure by investors to go green. Moody’s reports that North American oil exploration and production companies have about a billion in debt that will mature between now and 2024, and pipeline companies have an additional $123 billion in debt coming due over the same period.
Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at firstname.lastname@example.org.