2012 March 2

The Master Resource Report 2012-03-02

Oil imports are down to only 44.8%

“Imports as a share of US oil consumption dropped to 44.8 per cent, the lowest proportion since 1995, down from a peak of 60.3 per cent in 2005.”

That sure makes it sound like the U.S. is now over half way to that elusive “Energy Independence” we keep hearing so much about. However a better way of looking at this maybe to see how imports compare as percentage of U.S. domestic crude oil production.

The graph below is based on the latest EIA data running back to 1950 comparing U.S. crude oil imports to domestic production thru 2011. As the graph shows back in 1975 a key threshold was crossed during that year which averaged 49%. Four years later imports reached what was to be a record of 76.2% that would stand until 1989 when reached 76.8% on its way to 200%. But the real landmark year was 1993 when the volume of crude oil imports equaled the U.S. own domestic production capacity for the first time and it has never looked back since.

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Another striking point of the graph is that the U.S. has experienced the kind of steep decline in domestic consumption and the relationship of imports to domestic crude oil production before following the deep recession of the early 1980’s. The major difference of course between the 1980’s and today is that the price of crude oil fell to and remained at much lower prices in real and nominal terms.

The graph below from the EIA for imported oil shows that following the 1980 recession crude oil fell to $28.91 (1986) in 2011 dollars and remained low for over a decade. Today the economy is facing an oil price headwind that is essentially 4 times greater. Clearly simplistic comparisons to the 1980’s recession and recovery are of little value.

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This time it may very well be different. One of the fundamental rules appears to have changed. As every coach knows if there is a rules change next season the tactics and plays have to change too. Have your lifestyle and investment tactics changed?