Growing North American oil supplies promise to increase U.S. energy security, but they already are helping deliver a more global benefit: stable oil prices.
Among the beneficiaries of that are policy makers in Washington, who have less need to worry about the market impact of decisions they make.
On Jan. 15, the operator of a North Sea pipeline shut the system down after a leak, bottling up oil output from nine offshore production platforms. In years past, such an outage might have sent oil prices hurtling higher. Yet prices that day actually declined a bit.
The new supply isn't yet pushing prices lower, and analysts differ over whether it will. But it is acting as a shock absorber in a global supply chain that pumps 88 million barrels of oil to consumers each day.
In the late 1990s, oil prices started a long rally, climbing more than tenfold over a decade as demand outstripped production growth. Though prices plunged during the 2008 financial crisis, they soon started up again. The near-perpetual tightness conditioned markets to expect price jumps after even minimal supply interruptions. That is starting to ease, as U.S. benchmark oil moves in a relatively tight range between roughly $90 and $100 a barrel—closing regular trading Tuesday at $99.60 a barrel.
Certain developments could change this picture. If oil prices start falling, as some economists forecast, OPEC members would have less incentive to do the spending that keeps so much unused capacity at the ready. Alternatively, if a pickup in economic activity in big consuming countries drove up their demand, this could reduce the new global cushion.
There also are questions about the economics and geology of the U.S. oil boom itself. The cost of producing oil in America's hottest fields is unsettled, and varies widely. If costs generally end up on the high side, producers will need higher global prices to justify continued drilling. In addition, U.S. shale-oil wells have tended to deplete quickly, raising questions about the sustainability of the recent production growth.
Source: WSJ
