USA Oil Reserves: The World’s Largest?

The story is nothing new, it has been known for quite some time that the U.S. may hold the largest oil reserve ever. That reserve, dubbed the Green River Formation, stretches across western states Colorado, Utah, and Wyoming, and is sitting on mostly federal lands, making it much easier for the government to drill for the resource. So how big is the biggest reserve ever? It is estimated that this area contains a massive three trillion barrels of oil, half of which is currently recoverable. To give you an idea for how significant that number actually is, three trillion is approximately equivalent to the rest of the world’s proven reserves combined. But if this discovery is old news, why isn’t anyone talking about it? [see also 25 Things Every Financial Advisor Should Know About Commodities].

Physically getting to the reserve seems to be one of the issues at hand, and one of the reasons why this deposit is not making headlines around the world. Developing oil shale and fracking technologies seems to be necessary before this reserve can be effectively tapped. In recent years, however, oil technologies have been rapidly improving, and accessing this reserve seems to be a legitimate possibility in the coming years. Many are already discussing the benefits of job creation as well as the ability for the U.S. to become the world’s largest producer of crude oil. This of course would match up well with the fact that we are by far the biggest consumers of the fossil fuel, burning nearly 19 million barrels of oil per day [see also 25 Ways To Invest In Crude Oil].

What to Watch For

This has the potential to be a major development for not only the U.S. economy, but crude oil itself. As a commodity, crude has been steadily dropping in recent weeks, as many feel that is was overvalued due to fears of a Middle East conflict arising. But if the U.S. becomes the world’s largest producer, prices will be cheaper at the pump and we will hardly have to worry about instability in foreign producers. Investors will also need to keep in mind what will happen to the price of crude oil if there is a sudden injection  approximately equal to all proven reserves, essentially doubling the world’s supply. While this is assuming that the entire reserve will eventually be recoverable (an absolute best-case scenario), even a jump of 1.5 trillion barrels could bottom out crude prices and could destroy a lot of positions that traders have built up.

Obviously, the time line for this reserve will be relatively long and likely slow to develop, but investors/traders still need to keep a watchful eye on developments concerning what happens with the Green River Formation. Below, we outline several ways to make a play on this developing trend [see also How To Profit From Rising Gasoline Prices].

  • Crude Futures: The most direct method of making a play will come from futures contracts for WTI (not Brent). Investors have a multitude of options to choose from on the NYMEX as well as contracts extending out 5+ years. For those looking to make a bet on a longer timeline, an option contract on one of the larger futures may be your best bet as it allows you to make handsome profits and comes with much less liability than outright owning futures contracts.
  • 3x Inverse Crude ETN (DWTI): This ETN is designed to profit from crude’s demise by applying a -300% leverage to WTI contracts. If this reserve is tapped and crude prices crater, DWTI may be the perfect place to sit. Note, however, that the fund is very small, with just $0.6 million in assets, so it may not be around long enough to see this development unfold.
  • Exxon Mobil (XOM): Of course, using a major oil player is not necessarily a direct play, but it will definitely give you exposure to this reserve. This play will be rather interesting, as a wealth of supply could bottom prices, but it also grants incredible export opportunities to the Exxon’s of the world, which could push the stock higher. It all depends on who gets to drill and extract this reserve.

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Disclosure: No positions at time of writing.

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12 Responses to “USA Oil Reserves: The World’s Largest?”

  1. [...] Today, the Commerce Department reported orders for manufactured goods rose 0.7% in May, coming in significantly higher than the expected 0.1% increase. Across the Atlantic, Euro Zone’s Producer Price Index for the month of May was reported at 2.3%, slightly lower than the previously recorded 2.6% increase. Plenty of action was seen on the commodities front today, as renewed Iran tensions sent oil prices skyward and continuing hopes of more monetary easing from central banks helped boost gold futures [see also USA Oil Reserves: The World's Largest?]. [...]

  2. [...] Arguably, the most important commodity in the world today is crude oil. The product and its derivatives make their way into virtually every application of modern life from transportation to plastics. The vital commodity also dominates politics in many parts of the world and ensures that some top producing nations have outsized influence on the world stage. In light of this, many might assume that most investors know everything about the product and how it trades around the globe. However, that is not the case, as there are several misconceptions about the various types of oil and how this commodity is priced [see also USA Oil Reserves: The World’s Largest?]. [...]

  3. [...] fuel and its volatility has attracted many over the years. Ever since the recession when oil topped $140/barrel, analysts and experts have been trying to figure out where a peak lies, and where oil is headed [...]

  4. [...] Direct investment in crude oil products used to be limited to major financial institutions and oil companies themselves, but the development of the ETF industry in the U.S. has democratized the investment process in many ways, including making investments in various oil products accessible to average investors. There are a number of exchange-traded products that offer exposure to prices of various types of oil utilizing an array of investment strategies. Whether you’re looking to bet on short-term movements in oil prices or hedge against skyrocketing prices, ETFs offer an efficient, cheap, and easy way to gain exposure to commodity prices [see also USA Oil Reserves: The World’s Largest?]. [...]

  5. [...] failed to consider some of the oil that has been found but is currently unreachable, like the largest reserve in the world that sits on U.S. [...]

  6. [...] of crude oil, as the Middle East is rich with deposits of this fossil fuel. But the growth and rapid development of U.S. crude output has us on pace to dethrone Saudi Arabia in the not-so-distant future. We are [...]

  7. [...] While exports amount to less than 50,000 barrels per day, fracking techniques have helped total production increase somewhat rapidly in recent years [see also Can Oil Fix U.S. [...]

  8. [...] of crude oil, as the Middle East is rich with deposits of this fossil fuel. But the growth and rapid development of U.S. crude output has us on pace to dethrone Saudi Arabia in the not-so-distant future. We are [...]

  9. [...] has given the U.S. an enormous potential source of domestic energy, but that cheap energy comes with environmental and health costs. While fracking hasn’t become as [...]

  10. [...] Mexican juggernaut Petroleos Mexicanos (PEMEX) has discovered a major oil field that could yield an impressive amount of the fossil fuel. The company is already the fourth-largest [...]

  11. [...] Mexican juggernaut Petroleos Mexicanos (PEMEX) has discovered a major oil field that could yield an impressive amount of the fossil fuel. The company is already the fourth-largest [...]

  12. Cal_Grimalkin says:

    “That reserve, dubbed the Green River Formation, stretches across western states Colorado, Utah, and Wyoming, and is sitting on mostly federal lands, making it much easier for the government to drill for the resource.”
    Well, there’s the rub, isn’t it? A majority of our politicians have been corrupted by Saudi bribes and blackmail to restrict domestic drilling so as not to compete with Saudi exports.

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