The price of oil: REALITY

The fall of West Texas Intermediate crude prices on the mercantile markets of the North Atlantic below 80 USD per barrel is not the same event T&T has experienced in the past. This price fall is the result of the dramatic change in the structure of supply in the largest energy import economy of the North Atlantic: the USA. The fall in the price of WTI crude is then primarily the result of the shale revolution in the US. A recent Wood Mackenzie report indicated that in the past seven years the US added 3 million barrels per day of tight/shale oil and 27.5 billion cubic feet per day of shale gas to the world energy mix. This amounts to a 42% increase in US oil and gas production whilst US internal demand is decreasing on a yearly basis. One potent example is the US state of North Dakota where production of tight oil from its shale plays attained the record in April and May 2014 of 1 million barrels per day of production. The Wood Mackenzie report posits that with increasing production and decreasing internal demand the US is poised to become a nett energy exporter in 2025 hence energy independent. The major obstacle to attaining energy independence is the political order as there is presently a ban on export of US crude and approvals for the creation of LNG plants is not moving fast enough for those set on flooding the world with US produced shale gas LNG. The control of both Houses of Congress by the republican party arising from the elections held on November 4, 2014 is seen as a victory for the energy lobby in the US and action on these signal issues is now expected. The reality is that as the US decreases its imports of crude from world suppliers these suppliers are now forced to seek out buyers for volumes previously absorbed by the US in other markets. They are all now courting Asian buyers with a range of incentives but Asia simply does now have at present the level of economic activity to absorb the slack created by the new US supply dynamic. China chose to spend its way out of the 2008 implosion of neo-liberal capitalism and now the corbeaux are coming home to roost. The eurozone is yet to recover from the 2008 debacle and as the German economy slows the alarm bells go off. Whilst this reality plays out US demand for energy is robust but growing energy self reliance means non-US energy sources are locked out from enjoying US demand. Structural changes in the dynamic of supply demands that the other suppliers cut supply to fit actual levels of demand but this is not happening as a result the price of Brent crude must follow downward. There is a knock on effect of the drop in crude prices and the price of LNG linked to crude prices which will impact earnings on LNG. This is not a passing market correction phase as a new energy market of the North Atlantic is coming into existence with an entirely new dynamic which destroys the energy paradigm of T&T put in place by the politicians of T&T in the past. The present batch of politicians are then called upon to create and execute a brand new energy paradigm that ensures the sustainability of the social order of T&T. Haiti beckons!!!

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