Earlier this month, oil facilities in Saudi Arabia were attacked, knocking a large portion of production (about 5% of the world’s daily supply) offline. However, rather than a market-roiling global crisis, the result was a modest increase in oil prices. That’s telling of the times in which we now live.
A decade or so ago, the scenario would have been much different. And back in 1973, an even smaller reduction precipitated an eight-year “energy crisis,” complete with long gasoline lines in America (including Texas), oil-export bans (which only ended in 2015), 55-mile-per-hour speed limits, turning our thermostats down and daylight saving time. The reason such measures weren’t again implemented after the attack on Saudi facilities? The recent revolution in U.S. oil production and, in particular, the surge now going on in the Permian Basin where about two-thirds of incremental domestic output is occurring.
Immediately after the strike, energy prices jumped with the international gauge of prices (Brent crude) up almost 20% and West Texas Intermediate up about half that much. Within a few days, however, prices were close to where they were (about $3 higher as I am writing). Part of the reason is that Saudi Arabia was able to resume most of its production and has indicated that it will take less time than originally feared to be fully back to normal.
The other and more important part of the reason: The United States is now the world’s largest producer of crude oil. It has been two decades or more since Saudi Arabia and Russia began to exceed U.S. production, but the United States surpassed them to become the world’s largest producer in 2018. Production in the United States has been rapidly increasing since 2011 with much of the growth in the Permian Basin, offshore in the Gulf of Mexico and in the Bakken region in North Dakota and Montana. This growth has been enabled by technological advances in exploration and production techniques. And this trend is quite obviously ongoing.
To quote Secretary of Energy and former Texas governor Rick Perry in an interview with CNBC after the attack: “We’ve actually been planning for this in a sense because we’ve made our product [so] available, liquid nitrogen gas in particular. But today we’re about a net, I think, 5 million barrels of oil exported a day out of the United States. So there’s actually — there’s actually a silver lining, if you will, to this story in the sense that had this happened five years ago, it could have absolutely brought the global economy to its knees. Today, we’re concerned about it. We need to address it. But it’s not anywhere near as devastating as what it would have been let’s say five years ago.”
Global oil prices are currently moving in response to manufacturing data from Europe and Japan, economic outlook shifts and other patterns indicative of a “normal” market. The growth in domestic oil and natural gas production gives the United States more breathing room on foreign policy, even though anything approaching U.S. energy independence seemed farfetched just 10 years ago. Since then, production in Texas alone is nearly five times higher than it was in 2010, despite steady declines for decades before that time.
So long as a major military conflict can be avoided, recent events demonstrate that energy markets have become far more capable of coping with setbacks and supply interruptions than in the past. The resilience in the face of an event which would have caused major turmoil a few years ago is a harbinger of less vulnerability for the foreseeable future.