The International Energy Agency on Monday said the U.S. is on track to become the world’s biggest oil producer by 2020. By 2035, the agency said in its annual World Energy Outlook, the U.S. could get close to the elusive goal of energy independence, at least when it comes to oil.
But oil prices, the IEA said, will continue to rise, hitting $125 per barrel in inflation-adjusted terms — more than $215 per barrel in nominal terms — by 2035. U.S. consumers, the agency makes clear, won’t be shielded from those price increases, even if the country doesn’t import a drop of foreign oil.
Why doesn’t more production mean lower prices? Two reasons: supply and demand.
Oil is a global commodity. What matters for prices is total supply and total demand — not where the oil is produced or consumed. That means that even if the U.S. relied only on domestically produced oil, prices would still be dictated by global market forces.