The U.S. has ramped up oil production so dramatically that it’s joined Saudi Arabia and Russia as one of the world’s largest producers. Just glance at the chart below.
Since this surge began in 2008, American production rocketed from 5 million barrels a day to nearly 10 million barrels a day at the high point last year.
More importantly, oil analysts confidently predicted that a tide of benefits would flow as freely as the oil now coming out of the ground.
First, the U.S. economy would get a boost that would include a renaissance in manufacturing. Second, the U.S. would be far less dependent on the vagaries of foreign energy producers. And third, America could shrink its footprint in the volatile Middle East.
Yet none of this has happened. Why not?
Forecast No. 1: An Economic Boost
The boom, fueled by shale oil fields in places like North Dakota, was supposed to turbo-charge the economy. Energy would be abundant and cheap. Consumers would have more money to spend on other stuff.
And that’s all true. You see it in places like convenience stores. When it costs drivers less to fill up the tank, they buy more soda. Good for Coke. Good for Pepsi.
But many forecasters failed to see the other side of the equation. More American companies and workers are now linked directly or indirectly to the oil industry, and they get hurt when prices go down.
“Actually, oil has become more important to the U.S. economy because of this almost doubling of U.S. oil production,” said Daniel Yergin, the author of best-selling books on the industry, including The Prize and The Quest.
Americans used to worry only about high oil prices, he noted. But now the country needs to consider what happens when prices go down.
“You have people working all across the United States that are in effect part of the supply chains. So when the oil price goes down, and companies cut spending, this reverberates in Illinois, Ohio and many other states,” said Yergin, who is vice chairman of the economics firm IHS.
The U.S. economy has grown steadily since the 2008-2009 recession. But that growth has been modest compared to previous recoveries. Since oil prices crashed in the summer of 2014, going from more than $100 a barrel to around $30 today, the economy has continued at roughly the same pace.
So what’s the overall impact of cheap oil? Yergin describes it as a “titter-totter.” Some gains here, some losses there, but overall, pretty neutral.
Forecast No. 2: Energy Independence
U.S. imports have dropped dramatically, but this really hasn’t set the U.S. free in the ways anticipated.
All this new American oil contributes to the current worldwide glut and the low prices. And neither the U.S. nor any other country wants to be the one that cuts back and sacrifices its own production for the greater good.
“Someone has to cry uncle,” says oil analyst Steve LeVine, who writes for Quartz and teaches at Georgetown University. “The conventional wisdom is that American shale oil producers will be the ones. And they are in trouble.”
The reason is cost. Saudi Arabia and other low-cost producers still make a profit when oil is $30 a barrel. Much of the U.S. production is relatively high-cost, and many companies are losing money at the current price.
Every day, world production of oil exceeds demand by more than 1 million barrels. Many countries are running low on places to store the excess.
In the U.S., that place is Cushing, Oklahoma, home of huge and rapidly filling storage tanks, LeVine says.
Some 500 million barrels of oil are in storage around the world, says LeVine.
“That’s the largest volume in storage since the Great Depression,” he notes, adding that some forecasters are predicting that if storage runs out, oil could go below $20 a barrel.
Forecast No. 3: U.S. Pulls Back In The Middle East
Forecasters also argued that more U.S. oil would mean a reduced American need to resolve conflicts in the Middle East. Oil was, after all, the main reason the U.S. was drawn into the region decades ago.
But here’s the catch: Cheap oil can destabilize Middle Eastern countries that depend almost entirely on oil revenue.
Consider Iraq. It’s desperately short of cash as it fights the Islamic State and tries to stay current on salaries to millions of government workers.
President Obama pledged to end the wars in Iraq and Afghanistan, and he has withdrawn the large contingents of U.S. large ground forces. Yet in Obama’s final year in office, the U.S. is still engaged in three regional wars — Iraq, Afghanistan and Syria — and dealing with instability throughout the region.
All the forecasts looked at the potential upside of more American oil, but never fully factored in the downside.
Greg Myre is the international editor of NPR.org. Follow him @gregmyre1.