Better Days Ahead For North American Oil Producers

From Forbes

By Robert Rapier

Even those living under a rock are probably aware that the US is undergoing a revolution in oil and gas drilling. Because if your rock is shale it’s probably vibrating under a drill bit.

Over the past four years, US oil production has posted strong gains after nearly 40 years of steady declines. US oil production rose above the 6 million barrels per day (bpd) mark in late 2011 for the first time since 1998, according to the Energy Information Administration (EIA). By the end of last summer, production had risen by another half million bpd.

How special was 2012? Last week the American Petroleum Institute (API) released its Monthly Statistical Report [pdf], which puts things into perspective. According to the API, US oil production increased by 779,000 bpd, or 13.8 percent, last year — the largest annual increase in US history.

In my article, Understanding the Oil Cycle, I discussed the cyclical nature of the oil industry. Typically, oil prices slump once production capacity starts to grow rapidly and outstrip demand growth. In recent years, oil production capacity in the US has grown rapidly yet prices have hardly collapsed.

As US production was increasing sharply, demand for oil in the US actually declined. As a result, some people — prominent politicians among them — wondered why oil prices remained stubbornly high.

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