Supply and demand is the driving force of any industry and certainly it is a market driver in oil and gas. An overabundance of one directly affects the other and balancing the two can be challenging. But is there an even bigger x-factor in our booming petroleum market? One that is putting our most precious resource in the middle of an ugly trade war?
Crude or Liquid Gold?
Since oil was first discovered in America and the first wells drilled in Tittusville, Pennsylvania in 1859, the U.S. crude oil industry has created booms and busts. Our thirst for petroleum has been on the rise ever since, and communities across America have flourished and floundered because of it.
While some of the worlds largest oil and gas deposits can be found right in our backyard, drilling for them is not always easy nor cheap. And in oil rich areas like Texas and Oklahoma, the oil and gas industry has become the backbone of their economies. Communities across both rely on the oil and gas to fuel their survival, and a bust can devastate a small town.
One of Many Resources
Petroleum has become the lifeblood of our world. Nearly everything in our lives relies upon some form of petroleum. We need oil and gas just to survive. But, much like our own blood, it depends on outside resources to maintain viability.
It is dependent upon commodities like steel, copper, and others that are used to fabricate the components needed for drilling, transport, and storage of crude oil and gas. And any fluctuation in raw material prices has a ‘trickle down’ effect on overall production costs.
The American petroleum industry is also heavily regulated to meet environmental and production standards, all of which affect the profitability of drilling.
Trade War’s and Their Impact
Other global factors that impact petroleum production include recent trade tariffs imposed on China and Canada. Because we rely on these countries for raw materials such as steel and lumber, these sanctions have had tremendous impacts on the petroleum industry. And it’s not just on raw materials coming into the United States that are being affected.
China, which is the world’s fastest-growing energy market, now has tariffs on U.S oil and gas which has effectively closed off the U.S to the world market. While other countries like South Korea and India have increased their imports of U.S crude, China’s reduced imports of nearly 50% are taking a toll.
Export oil is an important component in our production since our domestic supply, including reserves are nearly maxed out. The same is holding true for U.S gas production of liquified natural gas (LNG).
The bottom line is, while the tariffs imposed in 2018 serve to protect America’s production and manufacturing industries, their impacts on petroleum could be devastating.