Oil and Gas Global Series: The impact of the United States

The link between geopolitics and oil and gas has long been established. The US interest in the Middle East has been attributed to the need for a consistent and financially viable supply of oil. However, in recent times, the US has emerged as the biggest producer of oil and gas in the world, topping the chart ahead of Russia and Saudi Arabia. Donald Trump’s none-too-subtle moves to isolate the US and make them independent from international economic influence has resulted in this surge in oil and gas production.

The Bay of Mexico

The influence of the US on oil and gas is such that there is an evolving dynamic influencing the calculation for demand, supply, and so price. Conflict in the Middle East and disruption along the Strait of Hormuz had been a significant influence on the oil sector. However, the change in dynamics in production makes the hurricane season in the Bay of Mexico a much deeper concern. Recent global tensions did not impact the price of Brent futures or West Texas Intermediate. The prices for these two critical companies rose. However, Hurricane Barry hindered transportation and resulted in a 6.4% drop in price for Brent Futures and a 7.6% drop for West Texas Intermediate.

The issue of disruption through a storm is the unpredictability and uncontrollability of weather. Disruption could emerge in days and escalate within hours. However, any damage done to offshore oil rigs, tankers, or onshore production through flooding, could take months to counteract. Although the 12 million barrels a day produced by the US offers protection for domestic markets against supply problems, 7 million barrels are exported through the Gulf Coast.

LNG (Liquid Natural Gas) is also transported through the Gulf Coast. With the increasing demand for cleaner energy, this could have an increasingly global impact. The US exports more than 6 billion cubic feet of gas per day. This equates to 20% of the global supply of LNG.

The US and global stability

However, this is not to say that the connection between US global policy and oil and gas have become disconnected. Superficially, Trumps decision to remove the US from the Joint Comprehensive Plan of Action was premised on it being a weak deal. Iran would be able to move towards nuclear weapons once the sunset clause applied. However, it may be that Trump was calculating the benefit to US oil producers if Iran was placed under strict tariffs. Since this decision to withdraw from the Iran deal, the US has moved from being a nett importer to a nett exporter of oil. The influence of the US is only going to grow. With the positive support of the President for continued use of fossil fuel, the number of exports is set to increase by a million to 1.5 million barrels a day per year.

Finally, the US economy is the largest; therefore, any moves by the US Federal Banks also influence oil and gas futures. The meeting of the Federal Reserve to discuss interest rates destabilised markets across the board.

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