US’ Diversification Strategy Influences the Oil Market

Presently, the USA’s main suppliers of imported oil are Canada (25 percent), Saudi Arabia (12 percent), Nigeria (11 percent), Venezuela (10 percent) and Mexico (nine percent). This effectively avoids the fluctuation in supply and price that might occur due to turmoil in the Middle East. Past events in the Middle East have influenced global supply and demand.

Influenced by Iran, Syria and other Middle Eastern countries, the NYMEX price of oil was already close to the high price of $110 per barrel on February 24, and the price of NYMEX light crude three-month futures contracts also set a nine-month high. International petroleum dealers forecast that the increasingly tense situation in the Middle East may push oil prices up to $150 per barrel. On February 23, the average price of gasoline in the US reached $3.59 per gallon, and industry insiders believe that the price might break five dollars this summer. As a country that consumes energy at a rate of 19.1 million barrels daily, U.S. energy prices and use deeply influence domestic and foreign policy and also have an extensive influence on the global oil market.

Ever since the oil exporting Arab countries implemented the oil embargo in 1973, America’s dependence on foreign oil has been an important political issue. The American Republican Party’s political position has been to support expanded domestic production of oil, natural gas and coal. The Democratic Party, represented by President Obama, advocates reducing U.S. dependence on foreign oil by developing green energy sources such as bio-fuels, solar energy and wind power, meeting America’s energy needs and protecting the earth’s environment at the same time.

In a speech given on February 23 at Miami University, Obama changed the focus of his message, emphasizing that the American government should implement a more comprehensive energy policy and expand domestic production in order to reduce foreign dependence. Obama had already announced the opening of 75 percent of U.S. offshore oil and gas field extraction rights in his 2012 State of the Union address, thus adopting a multifaceted energy strategy.

Following the March 2010 announcement to open up more federal land and coastal waters for oil extraction, Obama announced that the U.S. government would open up regions in the Arctic ocean and Gulf of Mexico with total area of 15 million hectares for oil exploration and extraction. According to reports, after setting aside $41 billion for compensation to deal with the crude oil spill, British Petroleum has already been allowed to recommence oil extraction in the Gulf of Mexico as well as oil well exploration in Alaska. Besides oil and natural gas, U.S. domestic shale gas extraction is a new factor emerging on the energy scene. Citibank recently released a report stating that North Dakota and Texas also have plentiful deposits; with expanded use of specialized fracturing technology, it is predicted that by 2035 the US’s daily production of shale gas could reach two or even three million barrels.

The energy policies expressed by Obama are, without spoken agreement, the same as those of the Republican Party. According to the Clean Energy Development Strategy announced in 2008, Obama says he will continue to develop clean energy and provide the necessary energy for three million families. In 2011, Obama announced the “Blueprint for a Secure Energy Future,” which aimed to double America’s output of wind, solar, geothermal and other renewable energy sources between 2008 and 2012. At present all projects are proceeding according to plan, with the goal that by 2035 80 percent of U.S. electricity generation will come from nuclear power, clean coal, natural gas and renewable energy sources.

Regarding this energy policy, experts believe that although Obama has no way of finding a shortcut to lower the price of oil, the energy diversification strategy he has proposed is already being comprehensively carried out. Presently, the US has already become the world’s fastest growing producer of oil, and will become a net exporter of refined oil products for the first time in 60 years. Offsetting imports with exports, America’s net daily oil imports have decreased from over 13 million barrels in 2007 to eight million barrels in 2011. As of 2011, American’s oil production is already equivalent to 55 percent of its total demand, the highest level in 8 years. At present, the USA’s main suppliers of imported oil are Canada (25 percent), Saudi Arabia (12 percent), Nigeria (11 percent), Venezuela (10 percent) and Mexico (nine percent). This effectively avoids variations in supply and price that might stem from turmoil in the Middle East. Such turmoil has influenced global supply and demand in the past. Various signs suggest the current situation regarding global production, supply and consumption of oil may see significant changes in the mid- to long-term.