So Much for Energy Independence

With all the talk about US shale production there is a lot of talk about the US becoming energy independent. But as this report from the FT makes clear, the whole world is still highly dependent on Saudi Arabia, Kuwait, and the UAE. 

The US might be drowning in oil, but the world is still dependent on Saudi Arabia.

Indeed, Saudi Arabia is pumping out more crude than at any time since at least the 1970s. In neighbouring Kuwait and the United Arab Emirates meanwhile, oil production levels hit record highs. 

These numbers reflect a profound but easily overlooked trend in the global oil market. In spite of the shale oil revolution in the US, the world has become, if anything, more dependent on a handful of Gulf producers to fill supply shortfalls elsewhere. 

This  is of course great news for Russia. In July, Russian output reached 10.4 million barrels per day, a post-Soviet high. 

The problem is uncertainty of supplies elsewhere. Libyan production is down almost 1 million barrels per day due to turmoil. Iran still faces sanctions, and Nigeria has its own problems. As the world oil market is like a bathtub these are shocks we cannot escape, so Saudi behavior still matters.

Hard to disagree with this conclusion.

The consequences for the global economy – and the world’s biggest oil consuming nations – are significant. Saudi Arabia is already the single largest supplier to many of the large importing countries, including China. But it only sells crude to existing customers, and does not allow buyers to sell on their cargoes. 

For all the talk about the shale boom, then, it is business as usual for the rest of the world in terms of supply. The market will be watching those output data closely.