The US shale oil industry has not decided to expand new production despite the recent increase in oil prices and the Middle East war. This restraint is surprising, as economic incentives usually lead to an increase in production. However, weak oil prices currently make an expansion of production unattractive.
Influence of Economic and Political Instruments
President Donald Trump is calling for an increase in US oil production to reduce dependence on foreign oil. However, the industry remains unfazed. This restraint shows investors that higher commodity prices do not automatically lead to a larger supply. The production costs and the current market price level are crucial factors in this equation.
A report from the US Geological Survey (USGS) reveals that the US has larger oil and gas reserves than previously thought, a legacy of the fracking boom in recent years. Despite this resource base, economic considerations limit short-term production capacity.
Trump’s Support for Fossil Fuels
Trump actively supports the domestic energy industry and focuses on fossil energy sources. Subsidies for renewable energy have been cut, while fossil fuels are favored. This may make the sector more attractive to investors, but it also carries uncertainties due to geopolitical tensions and the global market situation.
In summary, a complex picture emerges: despite higher oil prices and geopolitical uncertainties, the reality of the industry does not lead to a quick increase in production.