Sunday, 14 July 2013

Oil Well Drilling – How Can Investors Seize this Opportunity?

The U.S is Promoting Oil Well Drilling – How Can Investors Seize this Opportunity?

For most of the 20th century, the United States served as the world's largest producer and processor of petroleum products. States such as Texas, Oklahoma, and California were major oil producers that dominated the market and controlled world prices through the use of organizations such as the Texas Railroad Commission. In dire times, the United States was always seen as the supplier of last resort, as it could release excess capacity and flood the market with cheap oil. However, due to dwindling supplies and the availability of cheap oil through the Middle East, Central Asia, and North Africa, American oil supplies lost their profitability and the United States became a net energy importer.

Recent Changes in the Oil Industry

Recently, however, innovations within the oil industry such as hydraulic fracking have increased the profitability of American oil deposits. Due to this trend and the rising oil prices experienced during the 2000s, the United States is experiencing a drilling renaissance within a number of states.

North Dakota and Texas have been the main beneficiaries of this onshore drilling renaissance, as these states possess vast unexploited reserves that were previously unprofitable to extract. The exploitation of the Bakken formation in North Dakota has led to high population and employment growth in the area as individuals from across the country relocate in the pursuit of employment. Furthermore, the state has experienced a billion-dollar budget surplus due to the vast increases in tax revenue, and the local economy operates above full employment. It is hoped that the new technological innovations can repeat this occurrence in other regions of the country and improve the national economic outlook.

Extensive Profits in Texas

Texas has also experienced a growth in petroleum extraction due to the high oil prices and new drilling technologies. The rising prices have increased the profitability of a number of fields, and this growth in the energy sector has allowed Texas to avoid many of the effects stemming from the 2008 financial crisis. As the center of the energy sector, Texas benefits from increased oil well drilling throughout the country, as the state serves as the headquarters for a majority of firms in the industry. Due to this, a number of the profits from drilling in other states is repatriated to the state, and serves to boost the local economy.

Mutually Beneficial Government Practices

Local, state, and federal governments have been very keen on the promotion of onshore oil drilling in these states. Due to the current economic climate, there has been a marked drop in government revenues and employment numbers. By promoting onshore oil drilling, governments hope that they can increase domestic employment and tax revenues, as well as lessen the dependence of the United States on oil exports. As has been seen in the previous decade, the dependence on oil imports from volatile regions of the world has led to the involvement of the United States in numerous local conflicts to secure access to these resources. The federal government is expecting that the change from a net oil importer to a net oil exporter will allow the United States to pursue a more hands off foreign policy that will lessen the risk of the nation being dragged into conflict in the Middle East and North Africa.

Currently, analysts expect oil well drilling and extraction to continue to grow in the United States for a number of years, and anticipate the return of the United States as one of the largest exporters of petroleum products in the world.

Byline: Guest writer Jamie Decker has recently began expanding his investment portfolio. Understanding the value of diversifying his finances, he is currently learning how to invest in oil.

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