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Why U.S. Energy Independence Is Within Our Reach


The high stakes soap opera that is the Middle East has taken a strange twist lately.  Israel, Iran, and Saudi Arabia are pretending not to hate one another even as tension builds over Iranian nuclear facilities.  In the meantime, OPEC is acting as if they will allow the free market to push crude prices lower if and when Iran starts pumping 4 million barrels a day.

Thankfully for the U.S., surging domestic production means the country’s long-held fantasy of energy independence may become reality sooner than anyone thinks.  “We’re definitely getting closer,” says Oilprice.com’s Dan Dicker in the attached video.  “We’ve got about 600,000 barrels more production daily this year alone. The EIA says we will increase production another 1.2 million barrels over the next 18 months.”

Demand still outstrips production by a large margin, but with “every oil company and his brother” manic about ramping up in an effort to get their share, it’s possible an actual glut of oil might actually be in our future.  A heady prospect, but one that has serious implications for pricing and profitability in the industry.

Too much supply means falling prices.  Pushed too far and the cost of production of oil sands crude could exceed the market price.  Right now the estimated cost of is somewhere in the $60 to $70 range.  Should WTI, or West Texas Intermediate prices, drop below those levels the massive investments in the oil sands would become worthless.  It’s a far off prospect, but giving the size of the investments being made it’s hard to say the threat isn’t significant.

How to invest in the trend?  Dicker says he remains devoted to the prospect of natural gas finally getting its place in the sun. “I’ve been one of those guys who’ve expected it to be the next big thing for years and I’ve been wrong,” concedes Dicker.  The cost differential between the amount of energy derived from crude and $95 and natural gas just over $4/MMbtu is simply too large for the arbitrage not to work eventually.