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US government policy and oil prices

Hydrocarbon Engineering,

According to the Institute for Energy Research (IER), it is worth highlighting the tremendous impact that US production – and hence, US government policy – has had on falling oil prices.

On 18 July 2014 the Bureau of Ocean Energy Management announced that it has issues a ‘Record of Decision (ROD)’ that would set ‘a path forward for appropriate geological and geophysical (G&G) survey activities off the Mid and South Atlantic coast to update 40 year old data on the region’s offshore resources’.

A financial analyst, Tom Landstreet, argues that this announcement (plus developments in Mexico) would put downward pressure on oil prices as speculators anticipated a loosening of policy in the future. This was only strengthened by the election results.

In hindsight, the data certainly seems to bolster this theory. Of course, we can never know for sure what would have happened in the absence of this announcement, but it certainly seems prima facie that it sparked the massive slide this year.

Many people are now wondering whether US production can keep up the pace if crude prices fall below the ‘breakeven point’ of several major shale operations. However, the only reason American firms are so heavily tapping into higher cost extraction sites is that the federal government is keeping some of the most lucrative land off limits to exploration, let alone drilling. Even if world crude prices continue to fall, the US could maintain its enhanced level of oil output, if only the government would get out of the way, the IER concludes.

Adapted from IER analysis by Emma McAleavey.

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