Global Oil Prices, "What's Behind the Drop?" Series: US Oil Production and Alternative Fuels

Mirroring the US shale gas boom, oil producers have rapidly increased tight oil production in the US and turned discussions of "peak oil" to sometimes divisive policy debates on "energy security." US domestic crude oil output has grown about 70 percent in only four years, increasing from 5.6 million b/d in June 2011 to 9.6 million b/d this summer. In another parallel with natural gas, US crude oil production levels have declined only marginally despite the massive reduction in drilling activity that followed the collapse in global oil prices since July 2014.

At the same time, demand for motor gasoline--a major refined petroleum product--has declined due to increasing popularity of alternative fuels, such as ethanol, and the start of a new era for long-range electric cars. The industry, including by extension oil traders, has accumulated excessive oil inventory stocks that will need to be exhausted before stable prices can return to global oil markets.

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