Kamis, 28 Februari 2013

U.S. production of crude oil surges

I must echo Mark Perry on this (check out his latest post for lots of juicy details), since it represents a big positive change on the margin that supports the outlook for the U.S. economy.


U.S. crude oil production is up 22% in the past year, and has risen by an astounding 34% in the past four years. This is more than a recovery from recession, this is effectively a whole new industry that is being built on the back of new drilling technologies.


Along with the rise in crude oil production which started 2008 has come a virtual gusher of natural gas, which in turn has resulted in a huge decline in natural gas prices. As the chart above shows, from their peak in 2008, natural gas prices have fallen almost 75%. Crude oil is largely fungible and thus determined by global market forces, so its price hasn't fallen much, but natural gas is not easily fungible on a global scale (it has to be compressed and shipped) and so U.S. gas prices have fallen significantly.


As this next chart shows, natural gas has now become extremely cheap relative to oil. This has given U.S. manufacturers who use large amounts of energy a significant natural advantage relative to those of other countries, not to mention giving consumers in many areas of the country a big break on their heating bills. These are transformative changes in the U.S. economy which are extremely positive for the future.

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