US crude production might have reached its peak, hardly enough to counter OPEC’s price increase.
Oil production in the Texan Permian Basin might have reached its peak, ensuring a surge in price to $150 a barrel. The Permian Basin is the largest known resource of oil in the United States, on the southern border with Mexico.
The United States became a net exporter of oil and gas after the 2010 shale revolution. This even allowed US oil producer to access crude from basins previously considered unusable.
The shale revolution changed the geopolitics of oil. Before 2010, the United States maintained close relationships with the Saudi-led Organization of Petroleum Exporting Countries (OPEC). The US would provide for Saudi Arabia’s security while OPEC continued its cheap crude exports to the United States.
But the shale revolution changed the balance. Suddenly, the United States did not need Saudi oil anymore, and were therefore less committed for its defense.
Saudi Arabia, the world’s largest oil exporter, now prefers making business with US enemies, joining Russia in a production cut that is artificially inflating global prices. Since July, this combined effort decreased global oil production by 3.6%, and both nations confirmed it will continue until at least the end of 2023.
Oil price is hovering around the $90 mark, with the United States seeking more imports from nearby Canada.
150 dollars per barrel
Despite its best efforts, the United States can hardly afford an oil war against Saudi Arabia. Unfortunately for the United States, the Permian Basin oil reserves are reaching their peak production, and will likely be depleted by the 2030s, according to some experts.
Unless more oil supplies miraculously come online, Texan oil producers widely expect the global price to reach $150 a barrel. "That’s going to send a shock through the system," warned Continental Resources CEO Doug Lawler.
Oil prices are driving the current surge in US inflation, albeit counter-balanced by generally falling prices. A sudden peak in crude prices, however, could plunge the United States back to 2022-level inflation.
The Federal Reserve needs to close the inflation dossier fast. Interest rates have reached their 22-year peak, and the economy is slowing down. So far, recession was avoided thanks to the resilient post-Covid economy, but it won’t last forever.
Fed chairman Jerome Powell signaled that interest rates will remain at current levels until 2025. If they are not enough to battle inflation, new hikes will certainly cause a recession.
And the United States can ill afford a recession in 2024. Economic contractions during an election year are often the culprit of chaotic times, both at home and abroad.