The U.S.—and the global economy—may have a new safe haven asset: the growing American oil bounty.
The sociopolitical upheaval in places like Iraq, Libya and Venezuela has kept oil prices propped up at more than $100 per barrel, underscoring the unstable nature of many oil-producing nations. By contrast, U.S. oil supplies—close to generating 9 million barrels of oil per day—are expanding, and far more secure than most of those abroad. Simultaneously, the U.S. shale boom has become a draw for international capital.
To be sure, gold, the dollar and U.S. Treasurys remain the premier safety assets during times of global distress. Meanwhile, oil market dynamics are overwhelmingly driven by supply and demand that place a “fear premium” on internationally priced Brent crude, and which drag on prices when turbulence abates.
Still, crude is a long-term asset that attracts both investors and speculators. Meanwhile, America’s shale production has put the country on the same terrain as Saudi Arabia and Russia as an energy power. In the process, it’s turned a number of assumptions about oil and gas supply on their ear. Many economists have pointed out that fossil fuels are not as pricey as they could be in the face of a world in turmoil.
In recent research, Barclays noted that the “advent of U.S. (shale) oil has made the oil market much less vulnerable to supply shocks than in the past.” With OPEC production constrained and non-OPEC supply on the rise, “the market is not as reliant on OPEC to fill supply gaps,” the bank said, helping to contain oil’s upside. All of that could eventually give U.S. oil a stability premium, some say.
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