Germany’s demand for US crude

The US recently overtook Saudi Arabia as the largest producer of oil and gas, thanks to the Canadian tar sands and the fracking boom. This puts the US in a strategic position to flex its muscle on the global stage.

With the Middle East spiraling into chaos, and Russia making access to energy more difficult for the rest of Europe, there is be a greater demand for US energy, especially for its crude oil. However this would require that the US remove its self imposed ban on exporting crude.

Germany, unlike France, is still heavily dependent on fossil fuel, whereas France gets 75% of its energy from nuclear power.

In recent years, Germany’s energy needs have been hit the hardest. The nation is dependent on Russia for almost half of its fossil fuel. With a strained Ukraine, the pressure on Germany is much greater to hedge its risks. Germany also lost its supplies from Libya when the rebels shut down the supplies, fortunately it is now slowly coming back online.

In my opinion

It is interesting to note that Germany is using its influence in the EU to pressure the US to open energy trade talks. Germany hopes that these talks will also send the rest of the EU bloc a message of confidence that the big brother Germany is working on the bloc’s behalf to secure trade agreements for the bloc.

In my opinion, the US will maintain its competitive advantage and agree to an energy trade agreement which provides little benefit to Germany and the EU. The US is fully aware of the chaos in the Middle East, and aware that ISIS has started creating a fear amongst the ruling elite of Saudi. It will be in the best interest of the US to play the waiting game. The downside is that the waiting game might slow global trade and global growth (the IMF has downgraded global growth outlook for 2015), but in the long run, the US will still be able to maintain its global dominance.

If you are holding a gold portfolio which you bought in 2012-2013 at $1,500+ you might be in for some good news.