The U.S. Oil Renaissance: Another Reason to Celebrate America

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Jul 9, 2014 11:31:00 AM

and tagged Commentary

Leave a comment

Over the past several weeks, I’ve written a couple of times about the U.S. oil industry—specifically, how it’s becoming increasingly supportive of continued economic growth.

Following up on yesterday’s post, I want to take a more detailed look at the U.S. oil renaissance, and what it might mean for the country going forward.

America moves up the list of oil producers

As of 2011, per Wikipedia and the International Energy Agency, Russia was the lead oil producer in the world, at 10.9 million barrels per day, followed by Saudi Arabia, at 9.9 million, and the U.S., with 8.45 million. By 2013, the U.S. had moved up to the number-two spot.

U.S. oil renaissance

Fast-forwarding to May 2014, U.S. energy production has increased even more, to 12.3 million barrels a day, per the U.S. Energy Information Administration, and it’s expected to grow at an even faster rate over the next couple of years.

U.S. oil renaissance

Price drops as production rises

The absolute level of oil and liquids production has increased dramatically, along with that of natural gas, and the price has responded.

Looking at the Brent price for crude oil in the chart below, we see it rise until 2007 and then drop off with the financial crisis. As the world economies recovered, we see a price recovery—but not to the previous high; since then, it’s dropped down even as the recovery continued.

U.S. oil renaissance

Looking at the U.S. oil price, we see the same behavior.

U.S. oil renaissance

And U.S. natural gas prices have shown an even more pronounced trend.

U.S. oil renaissance

Cheap energy boosts manufacturing

Cheap energy has benefited both the U.S. consumer—gas prices are one of the major drivers of consumer confidence and spending—and U.S. business, particularly manufacturing. Below, we can see the direct connection in the growth of manufacturing employment, which increased over the same time periods.

U.S. oil renaissance

In fact, even as the number of jobs has increased, average overtime levels have returned to the peak levels of 2007. Surveys indicate that manufacturing employment is expected to increase at the fastest pace since 2004, and the average workweek for manufacturing and production workers has hit the highest level since the end of World War II.

The manufacturing recovery is also generating new jobs. Studies show that each new manufacturing job will support an additional two to three jobs in other sectors.

A brighter employment outlook

All of this indicates that the U.S. job picture should continue to brighten. I’ve noted before that employment is growing at levels consistent with the mid-2000s, and the most recent data shows that growth remains strong.

Overall, we should continue to benefit from growing domestic oil production in a number of ways—with jobs being a major one.

5 Ways to Affiliate
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Subscribe via E-mail

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®