In the United States, advances in horizontal drilling and fracking techniques are enabling more and more oil and gas to be extracted from shale rocks. As a result, US oil production is ballooning, sparking what many are calling an energy revolution.
According to the US Energy Information Administration, by 2016 the United States will produce nearly 10 million barrels of oil per day, ever closer to Russia's 10,5 million barrels per day and nearly Saudi Arabia's production levels. The government agency's Annual Energy Outlook 2014 also predicts that the United States will become a net exporter of natural gas by 2018. At the same time, the resulting changes in supply and demand dynamics could negatively affect the Chinese economy , Indian and European.
What will be the implications of fracking for US industrial growth, oil prices and the world economy, as well as for global investors? “The issue of shale gas – explains Antonio Bottillo, managing director for Italy of Natixis Global Asset Management – can represent not only an energy revolution, but also a geopolitical one, impacting on the balance between the various forces and global economies. Our multi-affiliate model, diversification in terms of investment strategies and methodologies, as well as our distinctive approach to portfolio construction, can help investors address the major changes and innovations our society is experiencing. Shale gas is transforming the US economy, but we don't know what the next revolution will be. What we can do as investors is build well-structured portfolios that are able to face future scenarios by navigating through different market environments”.
The US energy boom should lead to a large and sustainable reduction in the US external deficit imbalance (ie the share of a country's total debt owed by foreign creditors). “The US external deficit has been a problem and a source of risk since the early 80s, under the Reagan administration, because a high external deficit leads to a reduction in domestic saving. At the time, the balance of global trade saw, on the one hand, the United States characterized by a huge deficit and, on the other, all the other countries, on average with surpluses and with excess savings that went to compensate the deficit savings rate,” said Waechter, chief economist at Natixis Global AM.
In 2014, oil prices are expected to remain fairly stable or even decline slightly. But the extent of that reduction will likely depend on countries like Saudi Arabia, which has a precise level of price per barrel that allows it to balance its budget.
That said, Waechter believes the price of oil will depend on the strength of the global economic recovery in the near future. However, due to increased oil production by non-OPEC (Organization of Petroleum Exporting Countries) countries, the price of oil is likely to remain in a range of US$90 to US$110 in the coming years.
