ANNUAL U.S. FIELD PRODUCTION OF CRUDE OIL (THOUSAND BARRELS) 1993-2013

Emergency measures were a tough pill to swallow for citizens of the United States, where Edwin Drake drilled the first North American oil well in Pennsylvania in 1859. Of course, James Miller Williams, a Canadian, deserves credit for North America’s first commercial oil well since he struck black gold while digging for water in 1858 near Sarnia, Ont. Nevertheless, thanks to Drake, Pennsylvania dominated global oil production until Texas became the centre of the crude universe in the early 1900s.

As demand increased, the U.S. and other industrialized nations became reliant on imports from Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. In the early 1960s, these nations formed OPEC to coordinate export policies and influence prices. The cartel still has influence since it produces about 40% of the world’s oil and accounts for about 60% of the international petroleum trade. But OPEC is now paying for its 1973 embargo, which pushed customers to seek other energy sources and set the U.S. on the path to self sufficiency.

Not long ago, many oil-sector analysts worried about weakening supply and increasing demand pushing prices over US$200 per barrel. But things have gone the other way. At press time, the bar- rel price of West Texas Intermediate, like the price of Brent crude, had fallen more than 20% since the summer, dipping under US$80 in late October. Analysts at Goldman Sachs predict Brent prices will average US$85 a barrel early next year while the average WTI price slips to US$75. Previous Q1 2015 estimates for average Brent and WTI prices were US$100 and US$90, respectively.

Despite the conspiracy theories, the obvious culprit behind this rout is the combination of a struggling global economy and rising oil output, most of which has come from non- OPEC nations, particularly the U.S. Thanks to technological advances in harvesting shaleoil deposits, annual U.S. field oil production increased to 2.72 billion barrels last year, up from 1.83 billion in 2008. As a result, the U.S. is now on track to topple Saudi Arabia as the world’s No. 1 oil producer (if you include biofuels, U.S. output already beats Saudi Arabia and Russia). Meanwhile, thanks to politics and national budget constraints, many OPECmembers have lost the ability to cut production to defend prices without risking a political backlash at home, which is why cartel members are no longer part of a happy family that can agree on pricing goals and production strategy.