Geopolitical Tensions Shake Up Oil Production
The attack on an Algerian natural gas field has halted oil and natural gas production. What is the cost of this hit to production in a world constantly demanding more?

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On Wednesday, militant forces attacked an Algerian natural gas field.

Varying reports claim anywhere from 50 to 132 hostages were taken from the site by an al Qaeda-linked group after it attacked the In Amenas facility jointly owned by Statoil (NYSE: STO) and BP (LON: BP).

The attack was followed by a raid by the Algerian military in an attempt to foil the assailants. Claims that 35 of the hostages are dead have been reported.

Regardless of what the details turn out to be, the attack is undoubtedly tragic. Some news agencies are reporting hostages escaped; others say a large number were freed; still others are reporting only a few are alive, and still held by kidnappers.

Needless to say, the extent of the effects are unclear.

But what is clear are the implications this attack will have for oil...

Algeria is one of OPEC's twelve members. The nation produces almost 1.2 million barrels of crude oil per day and is responsible for 698,000 bpd in crude oil exports and 52.02 billion cubic meters in natural gas exports. The United States is one of its major customers, importing an average of 358,000 barrels of crude per day in 2011 and 186,000 bpd in October last year.

This attack, analysts have said, will take 24 million cubic meters a day of gas and 60,000 barrels a day of liquids offline — and no one can say how long this production halt will last.

Price Surge

In the midst of the turmoil overseas, the U.S. reported a sudden and significant drop in oil stockpiles.

Contrary to the gain analysts expected, U.S. oil stocks dropped by more than one million barrels last week.

Between these two pieces of news, oil prices surged.

On Wednesday, crude for February delivery was gaining on $95 a barrel, and on Thursday it broke that mark, rising to as high as $96.04 during the day before settling back down.

But this could mark the start of an even bigger climb in oil prices, which have been flirting with the $100 mark.

Nick Hodge told you this week that $100 oil is just around the corner. The price has been hovering just below that level for a while.

Demand will keep increasing... production, on the other hand, will not. Compared to consumption, production will taper off.

Some of this might be a result of rising consumption from the producing nations. Saudi Arabia, for example, has seen demand increase, particularly in the last five years:

Saudi Arabia Oil Consumption Chart

But some will also be a result of continuing geopolitical tensions.

The attack in Algeria is just the latest of these problems. Libya's production is only just recovering after the civil war that all but stopped oil exports. Iran's exports have fallen dangerously low — particularly for a nation whose budget relies on oil revenues — after its covert nuclear program sparked Western sanctions.

And when oil supplies are low, prices are sure to be high.


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The World's New Biggest Oil Producer

U.S. oil production, meanwhile, continues to grow. The report of falling stockpiles, while not good news, was countered by the fact that supplies are still higher than they would normally be this time of year.

Domestic oil production is at a 20-year high — but it's not stopping there...

The IEA expects the U.S. to surpass Saudi Arabia, the world's biggest oil producer, in about seven years.

This means domestic production will provide a safe ride for the decade to come.

Then again, so will crude oil in general. Because prices are going to continue to ride high — and move even higher — as rising consumption battles with struggling production overseas.

If you prefer to stay domestic, there are still companies that will provide safe entryways into U.S. oil production.

Threats on international oil reserves are going to push the price of oil up — and that means increased demand for growing U.S. production...

Don't miss your chance to profit.

Good Investing,

brianna sig cropped

Brianna Panzica
for Energy and Capital

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Geopolitical Tensions Shake Up Oil Production originally appeared in Energy and Capital. Energy and Capital, a free daily newsletter, offers practical investment analysis in the new energy economy.
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