3 Reasons the U.S. Should Want Higher Oil Prices

Before you go, we thought you'd like these...
Before you go close icon

The argument for lower oil prices is an easy one to make. Higher oil prices cost consumers and businesses more money, therefore lowering demand for other products. And since we import most of our oil, the money that isn't made by traders is just being sent abroad.

But a deeper look at the U.S. oil industry shows that maybe higher oil prices (within reason) aren't so bad after all.

1. Creating jobs here at home
One of the side effects of higher oil prices over the past decade has been increased production in the U.S. and Canada, lowering our dependence on oil from the Middle East.

That trend will continue if oil stays above $100/barrel, but when oil starts to drop, the economics change. Oil shale is economically viable when oil is between $70 and $95 per barrel, but wells are shut down if oil goes lower. The higher the price of oil, the more economical it is for companies including Kodiak Oil & Gas (NYS: KOG) , Continental Resources (NYS: CLR) , and Petroleum Development to expand oil shale production.

The same goes for offshore drilling. With oil being found in deeper and deeper water off the Gulf Coast, there's a threshold where deepwater rig owners like SeaDrill (NYS: SDRL) , Transocean (NYS: RIG) , and DryShips (NAS: DRYS) start to see demand fall off.

Alaska would be an even harsher climate for oil drilling; it would require high oil prices to be profitable.

You can't just stick a straw in the ground in the U.S. and expect oil to come out, like Saudi Arabia or Iraq. It takes capital-intensive investment, which requires high oil prices to be profitable, but would have the effect of creating U.S. jobs.

2. Reducing our reliance on foreign oil
The expansion of oil shale and deepwater offshore exploration and production has also led to a lower reliance on foreign oil over the past six years.

Not many people realize that our net oil imports have fallen from 60.3% of total consumption in 2005 to 47% today. Rising oil prices have had a direct impact on this continued reliance on foreign oil. If oil prices go down, shale production shuts down, offshore drilling stops, and we import more oil.

3. It's good for our energy future
I hope by now that even the staunchest oil supporters have recognized that oil is no longer the future of energy. Renewable sources are. Solar, wind, and other renewable energy sources have rapidly fallen in cost over the past decade, driven in part by rising energy prices.

Nothing helps the renewable energy industry more than headlines of $120/barrel oil, or gas over $5 at the pump. Since oil shale and solar energy are two of the few areas in the economy that are actually creating jobs, we don't want that momentum to stop. Higher oil prices would help drive even more investment in these areas.

For as much publicity as Chinese solar gets, U.S.-based SunPower (NAS: SPWRA) and First Solar (NAS: FSLR) are the industry's leaders in efficiency and cost, respectively, and both have plants in the U.S. First Solar is even adding to capacity by building a new plant in Mexico.

As the cost of solar falls, shipping costs, which are related to oil prices, will rise, making domestic manufacturing more attractive. Who wants to build a solar panel for $0.50 per watt and then spend $0.20 per watt shipping it? Again, higher oil prices lead to more U.S. jobs.

Foolish bottom line
I'm not suggesting that oil prices above $100 would result in immediate economic growth. In the short term it would be a negative. But if we look at all the new jobs that could be created in oil shale, offshore drilling, and renewable energy, we should consider the positives of higher oil prices.

More jobs and a reduced reliance on foreign oil are things we all should agree would be good for the USA.

Which stocks do Motley Fool analysts think will win big in a world of $100 oil? Click here to get our free report titled "3 Stocks for $100 Oil" to find out.

At the time this article was published Fool contributorTravis Hoiumowns shares of First Solar and SunPower and has sold puts in SunPower. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.The Motley Fool owns shares of Transocean.Motley Fool newsletter serviceshave recommended buying shares of First Solar. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners