A recent announcement by the White House that onshore drilling permit application reviews would be cut by 80 percent is good news of the month. According to the Secretary of the Interior, Ken Salazar, the measure will “make oil and gas permitting and production on public lands a reality [and] the automated permit application process, which is expected to be in place in early 2013, would be similar to a program already in place for offshore drilling permits.” The new automated processing of applications would reduce the permit review process from 298 days to about 60 days. With gasoline prices highest since 2008, Republicans criticized the Obama administration for foot dragging in issuing drilling permits and obstructing exploration and drilling in public lands. Simplification of the review procedure will further help usher the development of energy in the U.S., which has seen a renaissance over the past five years thanks to shale gas and oil supplies.
As access to federal lands for oil and gas exploration expands, some analysts optimistically predict that the U.S. is bound to significantly increase domestic oil production and reduce its dependence on foreign oil. According to Raymond James and Citigroup, U.S. oil imports will fall from 9.8 million barrels per day (mbpd) in 2011 to 4.5 mbpd by 2015 and reach zero net imports by 2020. Analysts in these companies believe that ramped up deepwater production from under the Gulf of Mexico and natural gas liquids output will account for such a dramatic change in the U.S. energy landscape.
This forecast seems to be overly optimistic. While increased domestic oil production is an important factor behind the growing U.S. energy independence, changes in the country’s hobbling economy, weak oil demand, increased physical supply, or the above average increase in crude inventories may carry implications on how the U.S. energy market would evolve. In other words, it may be too ambitious and misleading to put definitive timeframes by which the U.S. would be a zero net importer of oil. Another important factor that continues to impact oil prices is the role of energy market speculators, an interesting perspective on which is given by Forbes:
The U.S. oil production increased since 2008 from 4.95 mbpd up to 5.59 mbpd [but] is so small that U.S. supply increases have no discernible impact on the price. If oil prices were determined solely by supply and demand for oil, U.S. production might matter more to the price. But what matters most to the price of oil is the positions that speculators — who do not take delivery of oil – take. When oil hit $147 a barrel [in 2008], investigators found that those speculators accounted for 81% of the trading volume in the oil markets. There’s an easy way to take those speculators out of the oil price equation: raise the amount of capital they need to invest in their bets on the direction of the price of oil. And when the commodities exchanges require the speculators to increase the amount of their own capital — dubbed margin — into their bets, the price of oil seems to go down.
It is hard to imagine the U.S. energy market not to continue being impacted by global oil prices and by speculators in the future, given that it is already happenning at a time when the country has reduced dependence on foreign oil and boasts highest domestic oil production in eight years. Do correct if I am wrong.