Triple digit crude and drillers hit the brakes

quote:

---

Brent crude is trading over $100 per barrel, WTI has topped $90, but oil drillers in the world’s largest producer are cautious about their future plans. In fact, they are rather unhappy with the war in the Middle East, because it has made it harder to plan investments.

On the face of it, everything is perfect, price-wise. WTI is trading much higher than what shale drillers need to be profitable. According to the latest Dallas Fed Energy Survey, the range of WTI profitable drilling price levels for the oil patch is between $62 per barrel for non-Permian shale, $68 per barrel for conventional oil, and $70 for parts of the Permian. Yet only 21% of the survey respondents said they planned to significantly increase the number of wells they plan to drill this year.

According to a recent Wall Street Journal report, the reason is uncertainty. The report said that in private conversations with senior federal government officials on the sidelines of CERAWeek, oil and gas executives had demonstrated growing concern about the Middle Eastern situation and its impact on global energy security. Per the report, energy executives were growing frustrated with the messaging coming out of Washington, unwilling to share the upbeat tone of most of that messaging.

---

quote:

---

“What they fail to understand is that daily tweets driving volatility in both the commodity market and the equity market isn’t good for anybody,” Kimmeridge managing partner Mark Viviano told the WSJ. “It’s just really difficult to make any kind of intelligent decisions in that environment,” he added.

---

quote:

---

Meanwhile, one Dallas Fed Energy Survey respondent commented on the situation thus: “I think our operators are going to take a wait-and-see stance on any increased drilling plans to see how oil and gas prices fare over the next six months. We could all use what could be a short-term cash flow boost to repair balance sheets, reduce debt and get caught up on deferred but necessary capital spending, operating spending and general spending outside of drilling.”

In other words, the price rally is making the industry nervous, but the additional cash is not unwelcome. The big question, of course, is how long the crisis will continue because the longer it continues, the worse the fallout will be.

---

quote:

---

In oil, the consensus seems to be that things are not as bad. Yet that does not mean they are not bad, as suggested by some responses to the Dallas Fed survey. “The Strait of Hormuz adds complexity. Suppliers are already trying to increase pricing, and the administration continues to try to talk down [oil] prices. How sustainable are current oil prices? Hard to make long-term commitments or to “drill, baby, drill,” one respondent said. Another put it more succinctly: “Everyone is hoping and praying for a quick end to the war.”

---