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Here’s Why Gas Prices Appear Resilient To Whatever Turmoil Happens In The Middle East

Oil prices are staying low after Iran fired several missiles at multiple air bases in Iraq that housed U.S. troops. Analysts say a massive uptick in oil production in recent years is to thank for the low prices.

The average price of a gallon of gas is staying steady at $2.60, while global oil prices are hovering around $70 a barrel, according to AAA. A giant increase in oil production and exports have inoculated oil and gas prices from much of what is going on in the Middle East, analysts say.

“Before the U.S. energy revolution took off, American consumers were generally vulnerable to price shocks due to instability in the Middle East,” Dean Foreman, the American Petroleum Institute’s chief economist, said in a statement to the Daily Caller News Foundation.

The rise in energy production over the last several years helped “reduce market volatility” by 2014, he noted.

He added: “Consequently, recent geopolitical events have had relatively small effects on energy prices and provide a consistent reminder of how vital it is to have a strong domestic U.S. oil & gas industry.”

Other analysts made similar points. “The U.S. oil boom is the primary reason nobody is seriously discussing triple digit oil prices even with everything that is going on and went on this summer,” Stratas Advisors senior oil market analyst Ashley Petersen said, Axios reported Wednesday.

Prices are standing tall after the Trump administration initiated a Jan. 2 airstrike that killed Iranian General Qasem Soleimani. President Donald Trump blamed Iran for an attack in September 2019 on Saudi Arabia’s oil facilities.

Trump’s sanctions on the country have also not impacted the energy market.

Former President Barack Obama signed legislation in late 2015 ending a decades-old ban on crude oil exports, which resulted in U.S. oil production doubling between 2009, when Obama took office, to 2016, while natural gas production shot up 50% in that time.

Imports from the Organization of the Petroleum Exporting Countries (OPEC) fell as a result of Obama’s decision, tumbling to 1.5 million barrels per day in March, which is the lowest level since March 1986. The U.S. became the world’s largest producer of natural gas in 2012, surpassing Russia.

Oil production on federal lands and waters hit record highs in 2017 under Trump, according to federal data, averaging about 2.2 million barrels per day. Overall oil production on federal lands increased during Obama’s second term, even as drilling supporters said the administration had put up more regulatory hurdles.

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One Comment

  1. Originally published on 8/28/2019

    To: Members of Congress, News media, et. al,

    This paper focuses on leveraging the U.S. diverse economy against Russia’s oil dependent economy, and the pricing power of the U.S. to set oil prices below Russia’s capacity to balance its budget without changing its policies.

    Conclusion: Russia’s budget break-even oil price is $53/bbl versus $40/bbl for the U.S. The U.S. oil reserves and production capacity can keep oil prices below $40/bbl and lower for years. The U.S. should use its advantage to blunt Russian influence, e.g., in Venezuela, Middle East, N. Korea, Cuba, etc.
    Factors considered (see table):
    The “budget break-even” price of oil: the minimum price per barrel that a country needs in order to meet its expected spending needs while balancing its budget. When oil prices are below the minimum price, a country cannot balance its budget unless it changes policies;
    The Gross Domestic Product (GDP): the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
    YEAR CIRCA 2018
    GDP $20.494 Trillion $1.688 Trillion Russia GDP only 8.2% of U.S. GDP.
    GDP Growth 2018 2.9% 2.255%
    Oil & related resources 7.6% of GDP
    = $1.558 Trillion 30% of GDP
    = $0.506 Trillion Russia exports 60% of its oil & related resources.
    Budget break-even price $40/bbl
    (Range 24-60)* $53/bbl *Fiscal break-even costs

    Sources:[email protected]/OEMDC/ADVEC/WEOWORLD
    John Lucas

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