Sudan, Saudi and the cheering on the U.S. oil patch

Consider the latest news from the Middle East and North Africa, and one grasps why many U.S. oil and geopolitical analysts are cheering what they see as a prospect that the country will seriously trim its oil imports.

At the Financial Times, Javier Blas describes a drop in Saudi Arabia's pivotal capacity for bailing out the global oil market in a pinch, quoting a new report by the International Energy Agency; the IEA says natural oilfield decline has eroded Saudi's spare production capacity. Nearby in Iran, the stand-off with the West has resulted in a 15-percent risk premium on top of market oil prices, writes Bloomberg's Ayesha Daya; traders worry of a loss of much oil to the market should the tension escalate.

Meanwhile in Iraq, oil giant ExxonMobil -- hard-pressed like the rest of the industry to find new reserves -- has been barred from a new round of presumably world-class oil leases, reports the Wall Street Journal's Hassan Hafidh; Exxon is subject to this punishment for signing an independent oil deal with the northern Iraqi region of Kurdistan, with which Baghdad is in a long spat over revenue sharing.

And in northern Africa, Sudan has reportedly seized another 2.4 million barrels of oil from South Sudan, which continued a two-week-old halt to its 350,000-barrels-a-day of oil exports, writes Reuters, and an outbreak of fighting between the neighbors seems possible.

Against this exceptional Middle East turmoil -- events with reverberations around the world -- Lou Pugliaresi of the Washington-based Energy Policy Research Foundation tells me that in just five years, U.S. oil imports by sea are likely to fall to 4 million barrels a day, or less than half today's level (see slide eight). Pugliaresi credits a rise in oil production from far more predictable places -- a 1.5-million-barrel increase in U.S. unconventional oil production (oil shale and tight oil from North Dakota, Texas and elsewhere), plus more oil sands imports from Canada.

In so forecasting, Pugliaresi joins a critical mass of serious analysts who have found the same North American production trend line. I have expressed surprise about their crystal ball-gazing, since this forecast of plenty follows several years of precisely the opposite prognosis -- of difficult times in the oil patch -- and no head's up of a coming U.S. oil boom. Key data is missing from the analyses, those that I have seen anyway: None provides an oil price presumption underlying the higher forecast (when prices plunge, they play havoc with projections by making much oil uneconomic to produce); neither do they disclose their presumptions of oilfield decline, the natural annual drop in the volume of oil within a given patch (as with the Saudi decline noted above, when adjusted for a typical drop in oilfield performance -- often between 5 percent and 8 percent a year -- hoped-for production increases can be curtailed).

Another source of skepticism is that many of the analyses use politically charged descriptions such as "energy independence" to describe their findings, which inadvertently or not plays into base public emotions, and the partisan echo chamber in Washington. The non-partisan IEA for instance has released a similar but quieter report forecasting a U.S. oil production rise to 6.7 million barrels a day, tapering off to 6.1 million barrels a day through 2035.

Yet as suggested, one understands why Pugliaresi and the others appear to be animated: The U.S. suddenly would rely much more on stable supplies of its own and from Canada, and less on turbulent places such as the Middle East.

Other beneficial impact would follow as well: If U.S. oil production does rise significantly while consumption falls and efficiency rises, the combination would seriously moderate the world's largest pull on crude oil supplies. At the FT, Mansoor Mohiuddin argues that one result could be a shakeup in the U.S. economy and how traders (such as the New York oil traders pictured above) earn money betting on it, lowering the country's trade deficit and boosting the value of the dollar.

Caution remains in order. But one gets the early partying.