The Political & Financial Implications Of The Oil Boom No One Is Talking About

​It hasn't gotten much press but the US is producing a lot of oil right now.​

To be more precise: the US oil industry is presently producing more oil than any other country in history, ever.

That is quite a fact, when you consider it.

You would think that in a time of weaponized energy production, destabilizing inflation and increasing geopolitical strife that this development would be something to be widely celebrated.

You would be wrong. It goes unmentioned by a left determined to signal virtue on the climate and a right hungry to capitalize on high energy prices and the costs of high regulation.

This leaves no one to celebrate the impressive work from one of the US's most criticized and yet also most vital industries so we thought we would step forward to highlight and recognize.

That lack of interest in the very real accomplishments of the US energy complex is, well, interesting to think about when it comes to the reality distortions that accompany our highly ideological age but far more important than the political angle is the real world impact:

Vital US energy flows are helping Western consumers - in the US and also Europe - stay financially afloat and, increasingly, is bleeding over into feeling cautiously optimistic about their overall economic situation.

After years of high inflation, high energy prices and eroded income that is GREAT news. It is also a fitting and very nice symbol of everything that has changed in the US oil industry.

Older subscribers might remember that US oil production was a big theme of ours back in the early days of this newsletter in 2021 and 2022.

​Then it was a big deal for us because, well, the US wasn't fulfilling its energy potential. Prices were high as the post-Covid boom gathered steam but, for a variety of reasons, the US wasn't producing more to supply the market.

​In earlier editions, we wrote at length about why and why this was a strategic and economic mistake. ​

Rather than profiting from high prices and supplying a global market hungry for energy we were instead sending those profits elsewhere. US (and European) energy consumers were enriching the likes of Saudi Arabia and Nigeria and Venezuela and demonizing one of the most important industries in the US for reasons that were never entirely clear. Climate change is a serious problem but the connection between combating climate change and preferring to buy oil from the Middle East or Canada was never very clear to us.

You aren't doing really much of anything. You are just pretending you are. That seems like the wrong way to go about saving the planet or really anything actually.

Anyway, the good news is that all of that has changed in the intervening two years. The US is producing a ton of oil and doing so in an efficient manner.

Here is the graph of US weekly crude oil:

​U.S. domestic crude production had increased to around ~13.2 million barrels a day by this autumn. That number was up almost 900,000 barrels a day from the same month in 2022, according to the Energy Information Administration’s latest figures.

The truly impressive thing about all this is that the number of US oil rigs in operation are actually down over the last year. The number of derricks is currently around 500 which, to put in context, is down from 700+ before the pandemic and far from the thousands of rigs a decade ago during the peak shale boom.

The conclusion is pretty simple: as has been the case for much of the last two decades, the US shale oil industry has found ways to do more with less. The fact that they keep pulling the rabbit out of the hat doesn't make it any less wondrous.

In fact, these companies are now doing something that was previously thought impossible:

Produce more oil without spending themselves into the red.

All of this is great because it means that, despite war in the Middle East and the associated disruptions in the Red Sea, the global oil market continues to be well stocked with crude at an crucial time in the fight against inflation and serious economic volatility and disruptions.

That doesn't just matter economically, however, it also matters politically.

Two years ago we wrote a long piece about "as gasoline prices, so go US voters." This theme bears thinking about as we go deeper into 2024 and slowly but surely grind towards next November's election.

And while it hasn't necessarily shown up in President Biden's approval ratings yet it is nonetheless inarguable that the US consumer is feeling more optimistic - largely thanks to lower inflation and cheaper energy.

Look no further than the authoritative Michigan Consumer sentiment survey released last week showed a 13% positive jump in US consumer sentiment over the last month. This took the survey to the highest level since July of 2021 and also means that the 29% jump over the last 2 months is one of the largest ever.

It doesn't just matter domestically either. The real "win-win" is that the US is benefiting economically while also keeping like-minded democracies well supplies with energy.

US oil exports to Europe are up over 24% since late 2022 and 82% from before Russia's invasion of Ukraine.

The actual figures are not small either. It goes almost totally unmentioned but the US is shipping 4.5 million barrels of oil a day around the world right now. To repeat: a day. This is both a huge development and also a huge positive. You might not like US oil companies or oilmen and women but they are far, far more preferable to nearly any others. Better the tax paying oil men of Texas and New Mexico than into whatever Swiss bank account the billions of oil revenues in Venezuela and Iran end up.

That isn't all. Our environmental regulation of the industry is also far tighter and transparent than it is elsewhere. The domestic US oil industry is not just helping the fight versus inflation and So, oil may still be a dirty industry but it is an unpleasantly necessary one as well.

In World War Two the US was known as "the Arsenal of Democracy" as it supplied vital arms around the world to Allied countries to help combat the scourge of fascist authoritarianism. Today, the US sadly really struggles to supply its allies with enough weapons or ammunition but is doing a far better job of supplying the world and especially its allies with much needed hydrocarbons.

This is important! The much maligned oil industry is helping combat inflation, revanchist authoritarianism and destabilizing populism in countries all over the world, not just the West. Put differently, this oil is helping to lower the odds of a true polycrisis. All from an industry that generally take nothing but criticism, tougher regulation and overt political discrimination

.Energy Supplier of Democracy? Oilwell of Democracy? We will keep work shopping it....

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