Hydraulic Fracturing in the United States. In 2005, the US had to import 60 per cent of its supplies from abroad.... By 2014, however, the USA only needs to import 30 per cent of its oil consumption. Insurgency in Iraq not Affecting Oil Supply. IS controls the central region of Iraq and eastern parts of Syria. All of Iraqs oil is in the Shia-populated southern Basra region of Iraq and the Kurdish region in the north of Iraq. End of Iranian Oil Embargo. The end of the US-led embargo on Iran automatically presaged a glut in oil supply.... Irans extreme need for cash meant that it would inevitably pump out as much oil as physically possible. Lybyan Oil is Back. Libya suffered a lot of damage to its oil infrastructure during the overthrow of Gadaffi three years ago. However, all that damage has been repaired and now Libya is back in business. Like Iran, Libya is desperate for cash and will sell as much oil as it can no matter how low the oil price goes. Japan Nuclear Generators are Back. Japan closed down all its nuclear power plants and reopened its mothballed oil-, gas- and coal-fired power stations. This factor placed enormous pressure on the worlds fuel supplies keeping prices for all three power sources buoyant. However, this demand suddenly evaporated in July 2014 when Japan reopened all its nuclear power plants. Saudi Arabia needs Sales Saudis ... need to maintain production to lavishly pacify their islamists. Point 6 is unfair to Saudi Arabia. They are fighting the islamists in Iraq and are lavishly supporting countries, including Egypt, that are providing a bulwark against the islamists. So, we can conclude that oil prices are falling because of increased world oil supply. What does this imply for the U.S. Economy? The most likely effect will be very positive. Oil is a resource that goes into transportation and many other products. When oil prices fall, business costs of production and transportation fall. Other things being equal, this will be very good for the American economy. Will there still be problems? The answer is yes. The fall in oil prices will result in a slew of bankruptcies. Many oil producers will likely go bankrupt. Some of the countries that rely on oil revenue may default on their sovereign debt. U.S. banks could be caught with lots of bad loans. There could be a financial crisis. Moreover, it is not clear that the U.S. economy will benefit very much from lower oil prices. The dollar is going up in exchange rate relative to U.S. trading partners. Foreign governments, including Japans government, are playing the currency manipulation game with abandon in order to give their producers an advantage over U.S. producers. Investment in oil production has been contributing to U.S. economic growth lately. Falling oil prices will greatly reduce that investment. In a normal world of balanced trade, that loss of oil investment would be offset by investment in new U.S. factories to meet the increased U.S. and world consumer demand. Unfortunately, we do not live in a normal world. We live in a world in which America gives away its industries to mercantilist trading partners.
Posted on: Tue, 30 Dec 2014 00:10:48 +0000
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