There is no short-term fix for oil price volatility
Russia’s invasion of Ukraine has caused some of the most volatile days in the history of oil markets and this volatility is not going anywhere. The war in Ukraine has also shown, once again, that the world is heavily dependent on oil and gas and that any major disruption (or threat thereof) would threaten the world’s energy supply and Europe’s energy security. Europe and United States.
The US administration finally realized it needed to look to its own US oil producers for more supplies, instead of pleading for months with Saudi Arabia-led and Russian-led OPEC+. The administration’s calls for more oil and gas production in the United States…now, but only for the short term, please—have intensified since Russia invaded Ukraine.
But the industry, neglected for more than a year by the Biden administration and demonized around the world for exacerbating climate change, has this to say to anyone advocating for more oil production: We can’t because of the lag between drilling and first oil, also because of years of underinvestment, capital discipline, discouraging federal policies toward the oil industry, and supply chain bottlenecks.
The oil sector needs more investment and this could be a solution – in the longer term – to major supply shocks, said Exxon Chief Executive Darren Woods and other industry leaders oil at the CERAWeek by S&P Global energy conference in Houston this week.
The war in Ukraine and the resulting chaos in global energy and oil markets have underscored the global nature of oil supply and trade, as well as the lack of investment in oil and gas over the past few years, which is now evident in the fact that there cannot be a major boost to production from US shale and international oil majors.
At the same time, demand is rebounding from the pandemic slump and the world needs more oil, which cannot be supplied tomorrow – or even months from now – by American shale, even if all company leaders were to ask their boards and their investors to approve unlimited drilling budgets today.
“We will have to live with volatility”
Even before Putin invaded Ukraine, global dependence on oil and growing demand had tightened the market, which was one step away in Libya from price spikes and supply shortfalls. Now that a significant volume of Russian maritime supply – about three times Libya’s daily production – is struggling to find buyers amid sanctions and “self-sanctions” from traders and oil majors, price volatility naturally skyrocketed.
American officials admitted this at the Houston conference.
“Price volatility, and with supply and demand, is something we’re going to live with for a little while here in the middle of this,” the president’s special climate envoy John Kerry told CERAWeek, worn by The Wall Street Journal.
Nothing screams volatility more than the $30 a barrel jump in Oil prices since Putin invaded Ukraine two weeks ago, and accident wednesday, which saw Brent Crude tumble $15 a barrel after the United Arab Emirates signaled it would support higher OPEC+ production levels. There are also Russian threats falling here and there either to halt Nord Stream 1 gas flows to Germany or “Russia may be forced to rethink its energy supply commitments”, as the Kremlin spokesman Dmitry Peskov. noted Wednesday.
Biden administration changes tone for domestic oil industry
Faced with the highest gas prices since 2008, the Biden administration is asking US oil producers to turn on the taps. But only in the short term, because the long-term priority remains clean energy and the abandonment of fossil fuels. Production is increasing “now” and “near-term” in both White House reports. announcement of a ban on Russian energy imports and in Energy Secretary Jennifer Granholm’s speech to CERAWeek.
“We are on a war footing – an emergency – and we need to responsibly increase near-term supply where we can at this time to stabilize the market and minimize damage to American families,” Granholm said. noted.
“So yes, right now we need oil and gas production to increase to meet current demand,” the energy secretary said, focusing on the energy transition, while asking producers to American oil pump more oil NOW.
US shale doesn’t want short-term fixes
However, the U.S. oil industry cannot increase supply at present.
Even if ConocoPhillips decided to pump more oil today, the first drop of new oil would arrive within eight to 12 months, CEO Ryan Lance said. CNBC Tuesday.
Despite its flexibility to react to soaring oil prices, the shale plate in the United States can’t come to the rescue of the increasingly tight oil market in the near term, commodity intelligence firm Kpler said earlier this week.
While the US shale patch made it clear that it could not increase production at this time, it suggested that the feds should halt its anti-oil policies and support US energy over the long term, in order to free up the United States of dependence on Russia and other foreign adversaries, including currently sanctioned Venezuela and Iran.
Ever since the Biden administration began shunning US oil – which was President Biden’s first day in office when he shut down the Keystone XL pipeline project for more oil from US ally Canada – l he oil industry has repeatedly warned that limiting US oil and gas production will hurt energy security.
This became painfully evident after Putin’s invasion of Ukraine, prompting industry calls for long-term support from US energy.
“Approving Permits”, the American Oil and Gas Association noted this week.
Responding to comments from the White House that the companies are not operating “9,000 approved oil leases”, the Western Energy Alliance noted last week “The Biden administration has embarked on an over-regulatory agenda with sweeping new regulations in the works. The uncertainty of all the new red tape is now holding back new investment and development, especially on federal lands where the burden is greatest. Therefore, companies are prioritizing their non-federal leases because there are fewer regulatory risks.
Todd Staples, president of the Texas Oil & Gas Association, noted Tuesday:
“The administration calling on foreign countries to increase production a few months ago, rather than encouraging local jobs and local investment, has had a chilling effect on expansion.”
“This crisis should be a wake-up call: we need a strategic US energy policy that treats oil and natural gas as an asset, not a liability. Consumer suffering at the pump underscores the importance of home power generation, and U.S. consumers are feeling the impact of canceled pipeline projects, delayed approvals for permits and discouragement from further expansion, poor decisions , all exacerbated by the war,” Staples said.
By Tsvetana Paraskova for Oilprice.com
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