The "Oil Abundance" Narrative is Wrong

America has moved from oil scarcity to oil abundance, and our attitudes need to change in order to keep up. If the stream of headlines and panels is any indication, you’d have to be an idiot to disagree with that claim.

So call me stupid, because I just don’t see it.

There’s no question that U.S. oil production is booming. The country has passed Saudi Arabia as the world’s biggest liquid fuels producer and is now producing more oil than it imports. The rise in U.S. output, which is poised to continue, is good news for the economy and national security. It’s also something that leaders need to adjust to as they develop policy and strategy.

But setting production records and passing milestones is fundamentally different from abundance. By pretty much every meaningful indicator, the abundance story is wrong.

Start with physical volumes. The United States imports roughly half of the oil it consumes. If the United States imported half of its labor, no one would say that the country enjoyed an abundance of workers. Oil is no different. Saudi Arabia enjoys oil abundance – it produces far more than it consumes. Ditto for Russia, Kuwait, and a host of others. The United States is not in that category.

Prices are an even better indicator. Imported oil has traded around $100 for much of the last several years. You need to go back to 1981 to find real average monthly oil prices over $100 – and that lasted a whopping two months. Even if oil prices were to fall to, say, $70 a barrel, that price would be higher than it was for 346 of the 396 months between January 1974 and January 2007. If oil is so much more abundant than it was, say, a decade or two ago, why are sellers able to charge so much more for it? Real abundance means lower prices, not higher ones.

But you say: Aren’t we exporting record amounts of refined products – and now talking about exporting crude? That’s all true. But if we imported a lot of cars, painted them green, and then exported some of them, no one would say that we were enjoying an abundance of cars. (They might say that we enjoy an abundance of green paint.) That’s basically what’s happening with refining: we have an abundance of advanced refineries – more than we need for domestic consumption – but that’s different from having an abundance of oil. As for oil exports, that’s a variation on the same theme. We’re likely heading toward having an excess of light sweet crude relative to simple U.S. refining capacity, so it will make increasing economic sense to export some of the stuff. At the same time, we will continue to have a massive deficit of heavier crudes relative to abundant complex refining capacity; as a result, we’ll continue to be heavily reliant on imports in the aggregate. As with any traded item, it’s the net position that matters most.

And that reinforces the essential point. Abundance is the right narrative for a subset of U.S. petroleum refiners. It’s the right narrative for some U.S. states. It’s even the right one for some U.S. oil producers and pipeline operators. (It’s also a good one for natural gas.) And, to be sure, the extreme scarcity narratives (think peak oil) are wrong too. But just because the scare mongers are wrong doesn’t mean that we’re swimming in crude. And, most fundamentally, the position of the United States isn’t the same as that of the petroleum refining sector or the pipeline industry or even the state of North Dakota or Texas. For the United States, genuine oil abundance remains a long way away at best – and it would dangerous to forget that.