U.S. Nears 'Energy Independence'

For close to half a century, from campaign trails to oil and gas fields, "energy independence" has remained a byword of American politics. Since the 1973 oil embargo sent prices soaring 400%, politicians and policymakers of a certain age have vowed to insulate Americans from the whims of foreign oil-makers and the disruptions of geopolitics.

Now, it seems, that day has arrived – or at least some version of it.

Despite flaring tensions with Iran, unrest in Libya and Venezuela, recent pipeline constraints in Russia, and collapsing production in Mexico and Kazakhstan, the benchmark crude oil prices that dictate U.S. gasoline prices have remained relatively stable. Even attacks on oil tankers near the Strait of Hormuz and the downing of a U.S. military drone last month – events that, 10-15 years ago, would have sent prices soaring – barely caused prices to budge.

Brent crude oil, which started the year at around $54 per barrel, has edged to the mid-$60s and, since the end of May, has more or less stayed there – about $10-15 cheaper than the same period last year. Meanwhile average retail gasoline prices have held between about $2.65 and $2.90 per gallon, a few cents cheaper than in 2018.

And though the U.S. imports most of its oil, booming domestic production, especially from the Permian Basin that spans western Texas and part of New Mexico, is a key factor.

"I would almost switch out 'energy independence' to 'energy insulation.' We're insulated from some of these issues by the fact that we're producing more," says Patrick DeHaan, head of petroleum analysis at GasBuddy.com.

There are also other reasons why oil prices haven't jumped, despite what might seem reasonable worries about threats to supply, whether in the Middle East, Europe, or North Africa.

"Demand weakness, the trade war with China and indications of slowing economic growth are also significant factors," Ellen Wald, president of Transversal Consulting and a senior fellow at the Atlantic Council Global Energy Center, writes in an email.

Plus, the U.S. isn't – and probably never will be – truly energy independent: The country in 2018 was the second-largest importer of crude in 2018, behind China, and crude imports were on the rise between 2015-2017, reversing an eight-year decline, according to the U.S. Energy Information Administration.

Energy independence, strictly speaking, "is a myth, or at least something that both political sides can tout as an accomplishment," says Tom Kloza, global head of energy analysis at Oil Price Information Service.

The reason is U.S. refining capacity: The companies that invested decades ago in building refineries in the U.S. bet, amid dwindling domestic oil production, that they would be depending on imports of oil from overseas – namely the heavy, sour crude produced in places like Saudi Arabia and Venezuela. The U.S., by contrast, produces a light, sweet variety.

Unlike other commodities, though, oil is highly fungible: One quantity of crude often easily replaces another, and refineries built to process heavy crude can, if needed, handle the light variety. Meanwhile U.S. production has shown few serious signs of slowing down, and exports are ramping up, putting the U.S. on track to export more crude oil and refined products than it imports as soon as November.

"In some ways, this dramatically reduces U.S. vulnerability to oil shocks," says Steven Kopits, managing director of Princeton Energy Advisors. "If oil prices spike, the U.S. trade balance will remain largely unaffected, as there will be no net imports."

There have been some recent tremors in U.S. production: The oil and gas services giant Halliburton announced this week that it was cutting about 8% of its workforce, and the number of operating drilling rigs has fallen about 12% from a one-year peak in November. Experts attribute the slowdown to a lack of pipeline capacity in the U.S., investor jitters that the U.S.-China trade war and a potential recession will crimp demand, and, ironically, the low oil prices that motorists – and President Donald Trump – have so recently cheered.

"Many were expecting to spend the summer months between $60 and $70, and we're just not seeing it," DeHaan, of GasBuddy.com, says. "So going into the latter half of the year, there may be less excitement for bringing more rigs online, knowing that the summer driving season – the peak of oil demand – is going to be slowing down in the months ahead. And there's still an argument that there's plenty of crude oil to go around."