by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Not a fan of hydraulic fracturing for oil and natural gas? Your wallet disagrees.
The latest issue of Bloomberg Businessweek explains.
Political chaos and violence are keeping 3.5 million barrels of daily oil production off the market, according to estimates by Citigroup (C). With tensions heating up over Ukraine, pressure is building for Western countries to impose Iran-style sanctions on Russia, the world’s largest oil producer. That would likely send prices soaring and push Europe, which gets 30 percent of its oil from Russia, into recession.
Yet through all the turmoil, oil markets have been strangely complacent. The price of Brent crude oil, the most traded oil contract in the world, fell from $110 a barrel on April 24 to $107 on May 6. The past three years have been one of the most stable periods for oil prices in recent memory, says Eric Lee, an oil analyst with Citigroup. Last year marked the smallest range of daily price movements in more than 10 years, according to the U.S. Department of Energy.
The oil markets remain placid because almost all the oil production lost over the past few years has been replaced by the U.S. shale boom and increased Canadian production. U.S. shale oil production started to rise quickly in early 2011, right as the Arab Spring was kicking off. Since then, daily oil output in the U.S. has climbed by about 3 million barrels, to more than 8 million barrels. Canada has added more than 1 million barrels to its daily oil output since May 2011. “North America’s shale boom has been a huge calming factor,” says Lysle Brinker, an oil analyst at IHS Energy. “Without it, we might be seeing $150 oil right now.”