When it Comes to Price, it Doesn’t Matter Where Oil Comes From

From Globe and Mail

By Jeff Rubin

Move over OPEC, North America is about to become a net exporter of oil. At least that’s the supposed good news from the International Energy Agency’s latest outlook. According to the IEA, the drilling boom for shale oil is putting U.S. production on track to pass Saudi Arabia. North of the border, output from Alberta’s oil sands is expected to notch a similarly grand expansion.

Notions of energy independence, however far fetched they may seem today, play well to the IEA’s target audience, which is largely American. Irrespective of the political rhetoric we endured from both presidential candidates, energy independence isn’t really the issue confronting the U.S. economy or American motorists. The real problem is the price of oil–not its country of origin.

It doesn’t really matter whether the U.S. drills for its own oil, gets it from Canada, or ships it in from Venezuela or the Middle East. Hostile or friendly, no foreign supplier has turned off the spigot. At least not since the last OPEC oil shock three decades ago. The problem for oil consumers right now isn’t the availability of the fuel, but the price needed to get it out of the ground. Unfortunately, that’s already more than we can afford.

Brent, the de facto world oil price, is hovering near $110 (U.S.) a barrel precisely because of our growing dependence on the very unconventional sources of supply being championed in the IEA report. Energy independence isn’t going to change the reality of triple-digit oil prices. On the contrary, oil prices will have to climb much higher for the IEA’s forecast to come true. If that’s the case, does energy independence actually have any value for oil consumers?

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