Earlier this week, the Organization of Petroleum Exporting Countries announced it would cut production by 900,000 barrels per day, a move that sent crude-oil prices upward. Why can’t the United States do an end-run around those price increases by simply importing more oil from non-OPEC nations like Canada, Mexico, and Russia?
Actually, non-OPEC oil—sold at OPEC-influenced prices—doesn’t come particularly cheap, and the United States is already importing plenty of it. According to the latest American Petroleum Institute figures, Canada and Mexico ranked second and third, respectively, in terms of U.S. oil imports for June 2003; only Saudi Arabia (2 million barrels per day) was a bigger supplier, beating Canada by just 66,000 barrels per day. Overall, 42.5 percent of U.S. oil imports come from OPEC producers—members Venezuela, Nigeria, and Algeria round out the top six exporters to the United States—so cutting them out of our energy diet would require Canada and Mexico to ramp up production to unattainable levels. Of course, these non-OPEC nations could theoretically divert more oil to the United States by turning off the spigot for other customers. But it’s highly unlikely that suppliers would shun other longtime clients like, say, Japan or Germany for the sake of cutting the United States a break.
Russia is frequently cited as the most obvious future rival to OPEC, since it is believed to have a tremendous capacity to increase production. A big problem has been transportation, because funneling oil out of the vast Siberian fields has proved expensive. Russia is contemplating the construction of two multibillion-dollar pipelines to facilitate the transport of oil to the United States and Japan. Saudi Arabia, by contrast, continues to enjoy the world’s lowest production costs; some estimates place the nation’s per-barrel outlay at a mere 25 cents. And because it can easily adjust its output, Saudi Arabia is considered the world’s “swing producer,” able to stabilize prices by tweaking its production upward or downward when it pleases. Russia, meanwhile, claims it cannot easily adjust its machinery to increase or decrease production in the Siberian fields, since the drilling there is much more difficult. As a result, it currently exerts considerably less influence on global prices.
There has been a diversification of suppliers over the past several years, as countries like Russia and Angola have become bigger players on the world market. But America still relies heavily on OPEC, and on Saudi Arabia in particular. In 1979, when the United States was importing more than 5.1 million barrels of crude per day from OPEC suppliers, there was a general outcry to lessen the nation’s dependence on the cartel. Subsequently, from 1979 through 1985, imports decreased steadily, bottoming out at a mere 1.3 million per day. In 1986, however, fuel efficiency standards were rolled back, and crude imports now average between 4 million and 5 million barrels per day.
Explainer thanks Timothy Considine of Penn State University.