THE AMERICAN OIL REVOLUTION

THE NEXT LARGEST PRODUCER OF OIL

The crude oil production in the US, according to the latest monthly report of EIA, averaged about 6.5 million barrels per day in September 2012. This is the highest volume in almost 15 years. Moving forward, it is easy to understand why the United States is to become the worlds largest producer of oil in less than a decade. The present energy revolution in the US is mainly due to shale. That shale has changed the oil landscape of the US would be a gross understatement. Oil Shale is nothing but a type of sedimentary oil bearing rock with low permeability which contains a mixture of natural gas and liquids - including oil (Shale oil). In the US, Shale oil production is mainly concentrated in Texas and North Dakota. Drilling in the Permian Basin and the Eagle Ford shale formation has enabled oil production in Texas to grow from 31,661,000 barrels per month in September 2008 to 61,500,000 barrels per month in September 2012. Oil production in North Dakota is mainly from the Bakken shale formation. According to estimates of the US Geological Survey there are about 4.3 billion barrels of recoverable oil in Bakken, and drilling in this formation has helped North Dakota's oil production to shoot by more than 250,000 barrels per day (between September 2011 and
September 2012).

This past week has been surprisingly odd compared to a normal trading week in the oil industry. Data has not dictated price action. Oil futures saw a minor rebound Friday to reclaim the $93-a-barrel level, but still posted a loss of almost 3% for the week as traders fretted over ample U.S. crude supplies and weak demand prospects.

The IEA predicts the US to overtake Saudi Arabia and Russia as the world's biggest producer of oil by 2017. EIA prediction of oil production at 6.8 million barrels per day in 2013, which will put in the oil prices at about $3.44 per gallon next year as against the 3.64 gallon in 2012. As oil drops, the lower class will be able to increase their discretionary spending. Middle and Upper class members dont feel this small decline in prices, and thus their consumer spending is not affected.

"As long as I'm president, we will not walk away from the promise of clean energy," said President Obama. According to Economic Modeling Specialists International, the six fastest growing jobs since 2010-2011 were related to oil and gas extraction. So, the challenge for the present administration: More jobs, faster economic growth or greener energy policies?

Katherine Anne Doerr, Associate Analyst for Economic Analysis 25 February 2013 Sources: Bloomberg, NY Times, the Economist

Price volatility is common at this time of year as refiners walk a fine line between producing enough fuel to meet the wintergrade specification for the March contract before switching to the costlier, cleanerburning summer-grade fuel that meets the April contract specifications.

Pressure on U.S. crude prices built when the Energy Information Administration reported domestic crude-oil stocks rose by 4.1 million barrels last week, more than twice the expected level. Stocks are now sufficient to meet nearly 27 days of current low demand from refiners, EIA data show. That is the highest level of inventory cover since March 1994, and crude-oil stocks outright are at their highest level for this time of year on EIA data beginning in 1982. For the near term crude will continue to trade within the $90-95 range, down from the recent $95-100. However, these prices can easily sour if Congress allows the US to export oil.

Of course, it's not only shale. There is also the Canadian Tar Sands. Like Shale, this unconventional oil reached people only after the dramatic price rise in oil. In fact, compared to a conventional oil well, the extraction of these sands is about twelve percent dirtier. If the Keystone XL is approved to transport oil from Canadian Oil Sands to U.S. refineries, it would be a victory to the oil pundits at the expense of the environment. The Canadian tar sands produce about 1.5 million barrels a day, most of them coming from the Alberta oil fields. As a result, Canada is rather over-enthusiastic for pipelines to conduit the excess oil. The State department is not expected to make the necessary national-interest determination on the pipeline until at least spring of this year. Obama is likely to make the final call on the project.

Pressure comes from all sides as energy companies go after officials to allow a share of oil and natural gas production to be sent overseas, while industrial giants like Dow Chemical Co want cheap domestic energy to boost the factory sector.

The US dollar is also boosting oil prices. Strength in the U.S. unit can often weigh on prices of dollar-denominated commodities such as crude oil, as it makes them more expensive for holders of other currencies. On Friday there was a modest rise for the U.S. dollar, with the ICS dollar index (US:DXY) rising to 81.490 from 81.377 late Thursday in North America.