Last week, it was announced that the United States has become the world’s largest crude oil producer, now ahead of Russia and Saudi Arabia. This has happened in spite of the Obama administration’s attempts to stifle production of hydrocarbons in America. Texas and North Dakota now account for half of the crude oil extracted in this country. The energy sector has surpassed the twenty percent mark in terms of gross domestic product. In short, it’s a serious production boom that will last a long time. It’s only getting started.
As I wrote last week, I really have problems investing in the market at these levels. With all three major U.S. indices hitting or about to hit new all time highs, there is just too much complacency in the market in my opinion. The volatility index is at very low levels, indicating the market has a risk on attitude. This spells danger. However, I believe the energy sector is different. We’ve got a ten or twenty year run at least in hyper-hydrocarbon production. America is the technological and procedural leader in this energy revolution. The oilfield services sector will continue to lead the way in new fracking technology and will also make gobs of money exporting this technology around the world.
There is also one fact I think we can all agree on. There will be significant strife in the Middle East for the foreseeable future. With the Islamic State now threatening the kingdoms of Saudi Arabia, UAE, and Kuwait, the bid, or demand, for crude oil will remain high in the face of such geopolitical uncertainty. Saudi Arabia just moved thirty thousand troops to the border with Iraq. Israel is pre-positioning troops on the border with Gaza. Russia and Iran are supplying attack jets and other armaments to Iraq. What a mess! This is great for the price of oil!
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The rest of the world envies our technological prowess in the oilfield services sector and our success in fracking. We are not the biggest region of the world for crude oil reserves–Russia has much more. However, they can’t get it out of the ground. At some point in the future, they will realize they need Western help in upgrading their exploration capabilities. China also wants to increase domestic oil production. I haven’t even spoken about natural gas. Again, Russia has much more supply but can’t make it available. I foresee a time when American LNG exports will offset Russian gas supplies to the European market.
If we can get a government elected in the United States that has a rational outlook towards the production of hydrocarbons, then all bets are off; and crude oil production in America could skyrocket even further. We need a President who can call climate change alarmism what it is – a charade by the Left to increase its control over the population. If we really want to grow our way out of this economic and fiscal hole we have put ourselves in, then unshackle the energy sector. Either way, investors can be comfortable getting on the energy train here and enjoying the ride for a long time.
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