Talk of global oil market trends is everywhere these days. “The price of oil” is a phrase that seems to appear in every news report; it’s one that implies more than the price board at a gas station. Right now, cheap gas prices mean U.S. consumers are on top. In the long term, market volatility could potentially spread into a broader financial crisis and turn winners into losers.
In “The Strategic Importance of the Global Oil Market,” Dr. Leif Rosenberger of the U.S. Army War College’s Strategic Studies Institute points to the work of geopolitics, energy technology, and the Fed’s monetary policy as powerful market forces. His main argument focuses on the causality of record low crude oil prices: a gush of new oil supplies, reduced demand, ill-advised financial market speculation, and a stronger U.S. dollar.
Rosenberger asserts that the shale oil glut from U.S. producers has put global oil prices in a tailspin. Booming oil production has the U.S. “swimming” in a 30-year supply of unconventional fracking and horizontal drilling oil. This surplus is driving prices down and the oil industry into slump not seen in 20 years. American oil businesses are fighting for survival. Company profits are squeezed and the price floor is nowhere in sight.
Meanwhile, Saudi Arabia, which straddles about ¼ of the world’s oil, is engaging U.S. shale oil producers in a “de facto price war.” Saudis can confidently dip into their oil stabilization and sovereign wealth funds to weather the market slowdown. Yet the U.S., hanging tightly to the label of “swing producer,” struggles to sustain its shale oil production in a low price environment.
Rosenberger calls for a clear, cooperative international strategy that brings petro-states into a “wartime alliance” with U.S. oil producers. He makes the case for an international energy early warning system to monitor boom-bust indicators and predict an oil crisis well before it begins. For two interests currently at odds with one another—that of U.S. oil production, the other of global price stability—to coexist, Rosenberger believes sounder international oil policy is needed. That’s the crude reality.
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About the author: Our guest blogger is Chelsea Milko, Public Relations Specialist in GPO’s Public Relations Office.