On Monday, Investor’s Business Daily posted a commentary on the current global oil market. The commentary noted that Russia has been working with OPEC (Organization of the Petroleum Exporting Countries) to cut oil production in an effort to keep oil prices artificially high (after all– it worked in the 1970’s).
The commentary reports:
Despite an uptick in oil prices, a closer look at the oil market unveils the real winner of curtailing crude exports: America. U.S. oil output broke through the 10 million barrels a day mark for the first time in half a century. And, according to a recent statement by the Director of the International Energy Agency, it could reach a record of 12.1 million barrels a day in 2023.
Although the price of a barrel of oil has somewhat retreated from the January $70 heights, it is still $10 above its level a year ago and more than double what it was during the price collapse in early 2016. This has been helped along by phenomenal discipline within OPEC+, as the agreement on production cuts between OPEC, Russia and nine more exporting countries is informally known. Apparently compliance has reached a surprising 138% — exporters have made bigger cuts than initially pledged.
The details of this show that one reason for the drop in production is the collapse of Venezuela‘s oil industry. Last year oil production in Venezuela shrunk by 20 percent– roughly 500,000 barrels a day. When the government nationalized the oil rigs in Venezuela, they had no idea how to maintain the rigs and maintain production, so production has continued to drop since that takeover. What has happened (and is happening) in Venezuela is a living example of the fact that socialism does not work.
The commentary concludes:
Arguably, leaders of the Gulf states and Russia are falling victim to politics, a field in which it’s better to be seen doing something than nothing. Especially when no one is sure what (if anything) would work. But who is the biggest economic winner in this game? Ironically, it’s America yet again.
Each time Saudi Arabia and their allies restrict exports, they prop up the price and create a vacant market share which then gives a boost to those producers outside the agreement that are not bound by quotas. The biggest among them is the United States. Naturally, thousands of American companies are keen for a free ride.
All of that is happening already. The U.S. has just overtaken Saudi Arabia in oil production and is expected to rival Russia soon. No wonder U.S. oil companies were expected to be especially cordial with the Saudi delegation during the princely visit. But one might imagine that on the sidelines of the meetings many Saudis will be scratching their heads and wondering how and why did they get themselves into this pickle.
America needs to be energy independent. It allows us to be in control of the fossil fuel that is the backbone of the current world economy. The 1970’s proved that was important.