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The Global Energy Market

February 20, 2024 | Posted in: Insights, Investing

I pay some attention to trends in the energy markets because of painful memories of gasoline shortages and surging prices in 1973 and 1979 related to conflicts in the Middle East. So, where does the U.S. stand today? We are the number one consumer of oil using roughly 19.7 million barrels per day which compares with 11.7, 4.5, and 4.0 for China India, and Japan, respectively. We produce just over 20 million barrels, and as depicted below, passed Russia and Saudi Arabia in 2015 becoming the world’s largest producer with 14.7% market share.

Despite producing more than we consume, the U.S. actually imports about 8.3 million barrels per day or 42% of our usage. On the surface, that does not seem to make sense, so what is going on? Because we were dependent on foreign oil for many years, our refineries are geared toward heavy oil whereas oil produced in the U.S. is generally light with low sulfur content. Second, and more important, even after shipping costs, foreign supplies are generally cheaper because it is more expensive to get oil out of the ground here than in many other places.

There is good and bad news here. The good news is that technology has allowed us to increase production by 150% since 2009, and it is comforting to know that we actually have a slight amount of excess production capacity. The bad news is that oil trades in a global market. Given that we import such large amounts, we are still susceptible to price shocks as was the case in February of 2022 when Russia’s invasion of Ukraine led to a 25% price surge.