A few years ago, everyone was of the opinion that there was only so much oil that could be produced in the United States. Prices were high, and more production would have meant more money coming in, but the companies just couldn’t do it.
Fast forward to today, and the shale revolution has put everyone in oil heaven.
The amount of oil being produced in the U.S. is rising so rapidly that on Tuesday, the International Energy Agency (IEA) reported that the United States will end up surpassing Saudi Arabia in oil production by 2015. Years ago, this would have seemed impossible.
But the shale revolution has changed the entire U.S. energy landscape, and technological advancements have played a big role – particularly advancements in fracking. Though it's been around for a while, advancements in fracking technology made it possible to remove oil and gas from shale rock, opening up a whole new opportunity.
The Middle East has always been the world's center of oil production, but the United States is rapidly coming up on its heels. Now, many wonder if this could last for a while.
The IEA says no. From CNN:
"Shale oil is good news for the U.S, but we do not expect this trend will continue after the 2020s," IEA chief economist Fatih Birol told reporters Tuesday, at the launch of the 2013 World Energy Outlook in London.
The agency believes that by 2020, the oilfields from which most of the oil is being extracted will start to dry up, specifically Texas and North Dakota. This is when the Middle East will start to catch up, and Saudi Arabia will again take the lead as the world’s largest oil producer. Once the Middle East takes over as the prime oil source, it will remain in the lead for many years.
According to Gulf News, the IEA reported that the Middle East is going to need $1.6 trillion for oil and natural gas over the next 25 years. The chief executive of Crescent Petroleum, Majid Jafar, said there needs to be more investment incentives and partnerships to meet this monetary requirement.
The IEA forecasts demand for oil is going to increase to 15.5 million barrels a day by 2020 and 18.5 million barrels a day by 2030. The Middle East need to act now to be able to meet these demands.
Where’s the Greatest Demand?
China is going to surpass the U.S. in oil demand. The Middle East is going to require more oil than the European Union. India’s oil demand is going to exceed everyone, making it the single largest importer of oil.
These shifts are all coming down the pipeline, and they will start showing themselves around 2030. This is why it is crucial that Saudi Arabia figures out how it is going to produce as much oil as the U.S. – particularly if U.S. production runs out.
Prices for oil are going to rise because of the increase in demand. The report by the International Energy Agency expects a barrel to reach $128 by 2035.
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Investing in Oil at Home and Around the World
You have until 2020 to invest in American produced oil. The Rocky Mountain region – particularly North Dakota and Colorado – has the most active oil and gas drilling right now, with 1,138 operational horizontal rigs, according to Tudor, Pickering, Holt & Co.
As you’re looking at your investment portfolio, it’s not a bad idea to start thinking about how you can benefit from oil production in the United States. Seek out oil production companies in the Rockies, as they will continue to grow.
As for the Middle East, watch as more investments are made in the oil industry. You don't want to jump into the region now – and keep in mind that unrest will continue to make it extremely risky territory – but once U.S. production begins to fall off, you'll want to have something on the back burner.
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