U.S. Oil Boom Stabilizes Global Prices

NCPA July 10, 2013

Growing North American oil supplies promise to bolster U.S. energy security, but they are already helping deliver a more global benefit: stable oil prices. Crude oil prices have remained remarkably stable over the past year in the face of a long list of supply disruptions, from Nigerian oil theft and Syrian civil war to an export standoff between Sudan and South Sudan, says the Wall Street Journal.

The reason in large part is a thick new blanket of North American oil cushioning the markets. This has moderated the market effect of recent outages. Among the beneficiaries of the recent increase in oil are policymakers in Washington, who have less need to worry about the market impact of decisions they make.

• The new supply isn't yet pushing prices lower, and analysts differ over whether it will.
• Regardless, it is acting as a shock absorber in a global supply chain that pumps 88 million barrels of oil to consumers each day.
• That helps everyone, from manufacturers to motorists, by steadying fuel prices and making budgeting easier.
• In a less-noticed effect, it provides new geopolitical leverage to the United States.

The increasing U.S. energy supply helps reduce our vulnerability to global supply disruptions and price shocks, and thus affords us a stronger hand in pursuing and implementing our international security goals. Consider:

• Last year Washington pushed through tough new economic sanctions against Iran to blunt its nuclear ambitions.
• U.S. and European Union sanctions reduced Iran's oil exports by about a million barrels a day last year, according to the Energy Information Agency.
• The drop had little lasting impact on prices. This outcome would have been practically unthinkable a few years ago.

The new North American oil production has also reduced U.S. imports from OPEC members, which in effect gives OPEC more spare capacity. This gives the United States the ability to implement policies that will give the American people more security, and less dependence.

Source: Chip Cummins and Russell Gold, "Rising U.S. Oil Output Gives Policy Makers More Options," Wall Street Journal, July 2, 2013.