Two crucial things happened last Thursday.
The first you may have noticed - oil prices moved back up.
As for the second, most so-called "experts" seem to have missed it.
See, the environment we're seeing in energy markets is very different from what we saw only two weeks ago, when oil prices were also rising.
Because Thursday also saw - for the first time in world history - a reigning Saudi Arabian monarch in Moscow for talks with Russia's head of state.
Historically, Russia has been much closer to Iran - Saudi Arabia's main regional enemy.
Now, King Salman and President Putin are expected to endorse the plan to extend the OPEC-Russia deal to cut oil production and boost prices beyond the current end date of March 2018.
But that's not all they talked about...
Other, more far-ranging matters were also on the agenda, including the war in Syria.
And the catalyst for this huge shift in global geopolitics is surprisingly simple.
It's all about America's record-breaking oil exports...
Russia and Saudi Arabia Need Each Other... for Now
Now, there's no indication that Russia and Saudi Arabia are on the road to an alliance on anything beyond oil prices.
Even then, that accord remains only as long as it is in the subjective interest of the parties.
Nonetheless, it is disquieting to Washington that any such prospects may be on the horizon... or that U.S. oil exports may be introducing a range of foreign policy concerns.
From an energy perspective, the main issue at hand is the OPEC-Russian deal to cap oil production, which is now almost certain to continue further than the agreed-on end date of March next year.
And after some concerns had been raised over individual OPEC members exceeding the quotas the deal assigned them, evidence is now emerging that the restraint is holding.
As I've several times before in Oil & Energy Investor, there's no genuine alternative.
The major global sources of oil need to allow the worldwide market to rebalance.
That's the only genuine basis for stability and a slow increase in prices.
Now, with some of Libya's oil production coming back on line, it may seem like there's less flexibility for some producers to increase their crude output and still "hide" within the overall figures set by the cap accord.
But that's ignoring four major factors that could cut into oil supply and send prices higher...
Massive problems are accelerating in Venezuela, Nigerian extraction levels remain under threat from domestic instability, non-OPEC producer Mexico faces a continuing shortfall, and even the news from Libya - that a major field is coming back online - belies the ongoing civil unrest there and lack of forward production expectations.
The international balance between supply and demand will provide a rising price.
Yet that rise will remain a gradual one.
And this balance doesn't actually mean that there will only be exactly as much oil available as is needed at any given time.
That kind of "just in time" availability, where crude is lined only to meet immediate demand, is a certain recipe for high volatility and huge spikes in price.
Even a minor problem could create chaos in the markets.
Rather, a stable balance presupposes a continuing surplus of excess market volume.
That not only cushions the pricing dynamics from wide swings in demand, but it also allows producers the luxury of being able to predict the price range.
Anybody in the business will tell you that this predictability is far more important to maintaining profit margins than are the occasional large jumps in price.
An operator's financial survivability requires that futures sales be calculated into the estimate of the cost of producing the oil and selling it on.
These prices, called "wellhead prices," are the real revenue a producer receives in the first arms-length transaction as oil comes out of the ground.
These prices are also well below the market price quoted throughout a trading day.
U.S. Oil Production Is at Record Highs
But the primary caveat in all of this talk about an emerging balance remains U.S. production.
It's once again increasing and now has a more immediate impact on global pricing levels than has been the case previously.
That's because American exports have become a major factor in the global market.
For some time, oil prices have not been determined by what occurs in developed markets of North America and Western Europe.
West Texas Intermediate (WTI) and Brent, the benchmark crude rates set in New York and London, may dictate daily trade. Yet the demand fueling the market is generated in developing areas worldwide.
Until recently, the United States only indirectly impacted upon the international determination of price.
In the past, the only effect came from how much the American market imported from elsewhere.
For over four decades, Congress banned the export of crude oil from the country on national security grounds.
Those restrictions resulted from the Arab oil embargo boycott of the United States during the 1973-74 Arab-Israeli War.
Today's situation, where America has huge domestic extractable reserves of shale and tight oil, combined with significant improvements in production efficiency, has turned those security concerns obsolete.
There's also the simple fact that no producing country in the world (with the possible exception of Iran, for political reasons) can afford not to sell to the United States.
As a result, as part of a budget reconciliation two years ago, Congress lifted the ban on crude exports.
American refineries by that point were already leading the world in the export of processed oil products.
What followed was a quick move of American crude oil production back into the market...
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Despite the Hurricanes, Oil Exports Are Breaking Records
Exports had risen to a 1.1 million barrel a day level by the time Hurricane Harvey hit the Texas coast.
The hurricane slashed exports 60%. Refineries were also taken off line.
That combination should have pulverized crude oil prices, at least if you listened to the so-called "experts" on TV.
But that didn't happen.
Instead, what happened next was nothing short of astounding.
Exports swiftly returned. Record levels were reached in each of the last two weeks.
As of last Friday, the United States was exporting 1.98 million barrels a day. The rising level of American volume in the broader market now has an impact on global price and the saliency of the OPEC-Russian agreement limiting production.
Because remember, U.S. production is not a party to that agreement.
The rising spread between WTI and Brent has also served as an additional inducement to increasing U.S. exports. The more international Brent prices have been increasing quicker than America's WTI.
The difference, calculated as a percentage of WTI (the more accurate way of doing this), has now averaged more than 10% for the past 30 consecutive daily sessions - something that has not happened in over six years.
The advantage to American producers is simple. Exporting oil that costs less to produce at home into markets were the oil price is higher is a direct route to improving bottom lines.
As long as this situation remains, there will be additional U.S. production coming, because it's profitable to extract and export.
And the more U.S. oil is exported, the less immediate effect higher production here has on domestic prices.
But this is also resulting in changes to foreign expectations. Some of these are having spillover effects in other quarters...
Including sending Saudi Arabia and Russia into each other's arms...
At least for now.
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.