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\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/picture>\n\t\t\t\t\t\t<\/div>\nBrent crude is trading over $100 per barrel, WTI has topped $90, but oil drillers in the world\u2019s 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.<\/p>\n
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<\/a>, 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.<\/p>\n According to a recent Wall Street Journal report<\/a>, 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.<\/p>\n \u201cWhat they fail to understand is that daily tweets driving volatility in both the commodity market and the equity market isn\u2019t good for anybody,\u201d Kimmeridge managing partner Mark Viviano told the WSJ. \u201cIt\u2019s just really difficult to make any kind of intelligent decisions in that environment,\u201d he added.<\/p>\n Chinese Publication Claims U.S. Has Two Months of Rare Earths Left<\/strong><\/a><\/span><\/p>\n Meanwhile, one Dallas Fed Energy Survey respondent commented on the situation thus: \u201cI 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.\u201d<\/p>\n 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.<\/p>\n \u201cThere are very real, physical manifestations of the closure of the Strait of Hormuz that are working their way around the world and through the system that I don\u2019t think are fully priced in,\u201d Chevron\u2019s chief executive Mike Wirth said at CERAWeek, putting things mildly. In fact, fuel shortages are already beginning to emerge<\/a> in some Asian countries and, surprisingly to some, in Australia<\/a>.<\/p>\n It is perfectly normal for oil and gas executives to worry about the impact of the war on the price of the commodities they sell. After all, high prices are a good thing, but only up to a point. That point comes when prices go too high and start killing demand for those commodities. As Billy Bob Thornton\u2019s character in \u201cLandman\u201d put it<\/a>, \u201cYou want oil to live above 60 but below 90. And don\u2019t get me wrong, we\u2019re still printing money at 90, but\u2026 gas gets up over $3.50 a gallon, it starts to pinch.\u201d<\/p>\n Indeed, Wall Street Journal\u2019s Ed Ballard argued<\/a> in a recent report that the jump in LNG prices could be problematic for U.S. exporters. Ballard cited a recent remark by the CEO of Freeport LNG as saying, \u201cIt\u2019s a scary thing, it\u2019s not good for our industry,\u201d\u00a0referring to said price jump, which has already made some importers in Asia switch to coal, because it\u2019s cheaper. Meanwhile, Europe and the rest of Asia are trying to outbid each other for whatever LNG cargoes are coming out of the U.S. Gulf Coast. For now, it seems the Asians are winning, with about a dozen cargoes originally destined for European buyers diverting to Asia over the past month. Yet analysts warn that it is only a matter of time before demand destruction begins.<\/p>\n \u201cA global gas market that was expected to be oversupplied (and cheap) will now become undersupplied (and expensive),\u201d Eurasia Group said in a recent note, as quoted<\/a> by the Wall Street Journal. Indeed, LNG on the spot market is fetching $24 per mmBtu, Pakistani officials said recently, comparing this to $9 per mmBtu under the country\u2019s long-term deal with Qatar, which Qatar is currently unable to service.<\/p>\n 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. \u201cThe 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 \u201cdrill, baby, drill,\u201d one respondent said. Another put it more succinctly: \u201cEveryone is hoping and praying for a quick end to the war.\u201d<\/p>\n By Irina Slav for Oilprice.com<\/p>\n More Top Reads From Oilprice.com<\/strong><\/a><\/a><\/p>\n <\/body>\t\t\t\t\t\t <\/p><\/div>\n Back to homepage<\/a><\/p>\n<\/p><\/div>\n \n\t Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.\t <\/p>\n More Info<\/a><\/p>\n<\/p><\/div>\n<\/p><\/div>\n\n
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<\/p>\nIrina Slav<\/h3>\n
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