The United States has the most to gain and the least to lose as Saudi Arabia gathers with its OPEC allies this week to discuss the cartel’s response to falling crude prices.
For the oil industry, a significant production cut by the Organization of Petroleum Exporting Countries would lift prices and profits across the board and help finance further U.S. energy innovation. And while a weaker OPEC response -- or no move -- would put more pressure on energy companies, the industry is increasingly insulated by burgeoning North American output. Either way, U.S. producers already know what they’re going to do: drill on.
“The industry is very resilient, as strong as ever in recent history,” Tony Sanchez III, chief executive of Texas producer Sanchez Energy Corp., said in an interview. “The technological advances we’ve made underpin virtually everything right now.”
The swagger of U.S. producers in the face of plunging oil prices shows the confidence they’ve gained from upending OPEC’s six decades of market dominance with technology that wrings oil from dense rock for prices as low as $40 a barrel. The shale boom has placed the U.S. oil industry in its strongest position since OPEC began flexing its pricing power in the early 1970s.
Investors are taking note, poring money back into shale producers in the past 10 days after shares fell an average 20 percent since July.
Beyond the ability of producers to remain profitable at lower prices, the broader U.S. economy is even less susceptible to whatever course OPEC might take. A shift away from industries like steelmaking and into services such as health care has helped make the economy less reliant on oil and natural gas, according to government data compiled since 1950.
Since the 1973 Arab oil embargo, the first major shock brought about by OPEC coordination, the amount of oil and gas consumed in the U.S. to generate $1 of gross domestic product has fallen 64 percent. The U.S. in August imported an average of about 4.8 million barrels a day of crude and petroleum products, a 24 percent decline from 1986, the year when Saudi Arabia’s market machinations sent prices below $10 a barrel in a crushing blow to U.S. producers.
As the services economy has grown, oil demand has fallen, with the U.S. burning 13 percent less oil in 2013 than 2005. Improvements in fuel consumption mean cars and trucks can travel further on each gallon of gasoline. The nation is 26 percentage points more efficient in terms of the the energy required to generate economic growth than the global average, according to the U.S. Energy Information Administration.
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