The U.S. is currently experiencing one of its biggest economic shocks, largely due to high oil prices and the associated costs of gas, which remain stubbornly above $3.50 per gallon. This situation is particularly perplexing given that America is both the world’s leading oil producer and one of its biggest importers.
Despite being the top producer since 2018, with a daily output of about 20.30 million barrels – significantly more than Saudi Arabia and Russia – the U.S. also remains the largest oil consumer. It uses 20.01 million barrels per day, which is 20% of the global supply. This raises the question: why does the U.S. still rely heavily on foreign oil, and why hasn’t this production eased energy price worries?
The answers lie in a few key factors:
- Cost of Foreign Oil: It’s often cheaper to import from countries where extraction costs are lower. For example, Middle Eastern nations have the world’s lowest production cost at $31 a barrel, compared to U.S. deepwater wells at $43 a barrel and fracking-produced oil at $44 a barrel.
- Energy as a Political Tool: Oil prices are often influenced by the environmental, economic, and geopolitical strategies of nations. A notable example is Russia, which has used the commodity as leverage in geopolitical disputes, such as its invasion of Ukraine. This prompted the U.S. to ban Russian imports, a move that has had complex ramifications.
- Differing Oil Types: The U.S. refineries are primarily equipped to process heavy crude oil imported from the Middle East, not the light, sweet crude from domestic sources like Oklahoma and Texas. Adapting these refineries to process domestic product would cause significant market upheaval and risk existing investments, according to the American Petroleum Institute.
Efforts to align U.S. refining capabilities with its domestic oil production have repeatedly stalled, often due to environmental concerns or other political factors. Most experts believe that a significant change will only occur when new refining capacities are developed or existing ones are upgraded, both of which would entail substantial costs.
In summary, while the U.S. stands as a global leader in oil production, various economic and political factors continue to necessitate the import of foreign oil, maintaining the nation’s position in the complex global energy landscape.