Big Oil’s Attempt to Evade the Kiss of Death
Supply gluts occur as part of any normal business cycle, just like busts and shortages. And they allow for more demand down the line as consumers buy in.
For businesses, however, gluts are the kiss of death…
Even as demand spikes higher, the excess supply forces companies to maintain lower prices – for exasperating periods of time.
This chart says it all…
As more gas was produced over the past five years, prices plunged – even though demand was increasing at the same rate.
The problem is, a glut might be the only option for the U.S. oil industry going forward…
[ad#Google Adsense 336×280-IA]Increase Production, or Else…
The United States is now on track to produce more oil per day than Saudi Arabia in the next five years.
By 2016, it will be close to 90% self-sufficient when it comes to total energy production.
Indeed, refiners are importing less oil today than a year ago, as more oil is coming online from the shale regions.
According to a recent study, domestic light oil is already replacing imports.
Refiners on the Gulf and East Coasts imported 1.31 million barrels per day (bpd) of light oil this August – compared with 1.99 million bpd a year earlier, and 3.13 million bpd in August 2005.
But total energy independence isn’t going to happen without increasing production even more from current levels – something that would only benefit consumers…
Oil Companies Flock to Capitol Hill
You see, if production continues to increase, gasoline prices will have to come down. That’s good news for us at the pump. But as I mentioned above, lower oil prices also mean lower margins for refiners, drillers and distributors.
There might be a solution on the horizon, however…
Oil experts know that they have to sell globally or face the possibility of an incessant glut in the United States.
But in the mid-1970s, Congress enacted the Arab Oil Embargo, prohibiting U.S. oil companies from exporting oil overseas as a matter of national security.
Currently, though, the big oil companies are lobbying Congress hard to lift the ban on the sale of oil overseas.
So, within the next 12 months, this 38-year-old law aimed at preserving the energy security in the United States will likely be turned on its head.
For the consumer, overturning the law would change the picture for gasoline prices. And for the investor, it could give oil companies a major boost in the coming months.
Rest assured, we’ll be on the lookout for any new developments that could lead to a profit opportunity.
And “the chase” continues,
Source: Oil & Energy Daily