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Putin’s threats against Ukraine could reinvigorate the U.S. oil and gas industry


Halliburton oil fielder at the Well Head, a Fracking Rig Site near Stillwater (Oklahoma) January 27, 2016.

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Russian President Vladimir PutinHe has made clear his opposition to U.S.-shale drilling. He may not want to bring the American industry back if it invades Ukraine.

The pandemic of early 2020 also decimated the U.S. economy, just like other producers around the world. Prices for oil fell and crude futures turned negative at the CME briefly. The U.S. industry was extremely distressed and executives were able to resuscitate it. more cautious than ever about throwing money down oil wells and angering shareholders.

U.S. Industry has seen a gradual recovery thanks to rising oil prices,These have increased by more than half in the past year. Putin’s threat against Ukraine has driven an already high oil price of well over $90/barrel to a seven year high. Nearly 30% of that increase since the beginning have been due to Putin’s actions.

Dan Yergin vice-chairman of IHS Markit stated, “The last thing that they wanted to do is provide a pricing incentive for a rebounding in U.S. petroleum and gas production.” They have succeeded in driving up the prices which has strengthened U.S. oil-and gas production.

Russia was the first to supply oil and gas to Europe in the past. However, the U.S. warns that Russia could be dangerous to European consumers if it controls critical energy sources. Yergin claimed that Putin is a fierce opponent of U.S. shale. This was as far back 2013 the Russian president told a public forum in St. PetersburgThe danger posed by shale is grave.

Tension situation

President Joe Biden said TuesdayWhile the U.S. would like to continue using diplomatic channels with Russia to avoid any military outcomes, the U.S. warned that things are still in flux. Russia declared Tuesday that some of its over 100,000 troops at the Ukraine border were being withdrawn. However, Russia announced Tuesday that it would withdraw some of its more than 100,000 troops from the Ukraine border. NATO said Russia instead was increasing its troops.

On Wednesday, oil rose with West Texas IntermediateThe March futures rose 2.6% in afternoon trading to about $94.50/barrel

Yergin stated that “the geopolitics and energy are back with all fury.”

The conflict is evidently centered on energy. European natural gas prices have been soaring all winter because of concerns about a short supply. The region couldn’t store enough natural gas. Russia reduced some supplies in the autumn.

Russia exports natural gas through its pipelines, which run through Ukraine and other countries such as Nord Stream I. The Nord Stream II pipeline — built to bring gas from Russia to Germany — is finished but still awaiting German approval.

Biden stated Tuesday again that it would be illegal for the Ukrainian pipeline to function if Russia invades Ukraine.

The U.S. will impose sanctions against Russia if it invades. Analysts believe that Russia could either block energy exports to Europe from the United States or cut off supply as a retaliation.

This happens as the global oil market is moving back to normal. Air travel will improve this summer, so it’s expected that more of these people will be traveling.

U.S. Energy dominance

The United States was once the world’s largest producer of oil and natural gas. Yergin claimed that the U.S. Energy Industry has regained their dominance and is the leading oil-and gas producer.

Additionally, the United States is an important exporter. Over the past 4 weeks, the U.S. had exported an average of 2.6 million barrels of oil per day and 4.2million barrels of refined products (including gasoline and diesel fuel) according to Energy Information Administration weekly data.

Europeans also have an alternative supply source in the U.S. Energy industry. Ships carrying U.S.-liquefied natural gases were transported from Asia to Europe in January. IHS reports that the U.S. provided Europe with more natural gas via ships than Russia through its pipelines, a jump of 80% in LNG imports year over year.

IHS Markit estimates that 7.73 billion cubic metres of U.S. natural gas were shipped to Europe in January. This compares with the 7.5 billion cubic meters sent through Russia’s pipelines.

Although U.S. LNG has been able to help Europe weather the winter, it cannot replace Russian gas. Europe cannot process more liquefied gas than it can handle, but analysts predict that there will be a shortage. Qatar ships LNG to Europe as well and is able to grow its exports.

This is the highest amount of US LNG to Europe we have ever seen. We are pleased with the performance of European imports to America this month. For February, we anticipate a similar amount (more than 5 million tonnes).” Kpler analyst in an email to CNBC.

Yergin claimed that Europe is Russia’s natural gas market. “Europe had an energy crisis prior to the Ukraine crisis. He said that the difference between 2009 and now is the European pipeline system being more flexible. It can transport gas all over the world, unlike 2009. In 2009 when Russia interrupted the gas flow through Ukraine. LNG was not able to replace Russian gas supplies five years ago.

Petroleum as a weapon

Yergin stated that the U.S. will increase production to meet tight oil markets by approximately 900,000. Current production is about 11.6million barrels daily. It could reach prepandemic levels, of 13,000,000 barrels per hour by next year.

The oil industry is expanding its production, as evidenced by an increase in the number of rigs. According to Baker Hughes, oil industry rigs now total 516, up 19 rigs last week — the biggest gain in four years.

“I believe the Ukraine crisis has solidified oil wealth for all companies, including majors. Continental ResourcesThis is the only way to get it. announced a doubling of their spending John Kilduff, a partner at Again Capital said that their production is in direct proportion to the output. “Continental really is doubling down production. To get more oil from the ground, they’re prepared to pay higher prices now.

Although the U.S. has a large oil production, Russia, which exports about 5,000,000 barrels per day, is a larger supplier to world markets. Any loss of Russian oil could be felt worldwide if there was an invasion.

Russia and its OPEC+ partner countries have gradually increased production to meet demand. This goal should be achieved by summer. But the Russian government has long been wary of oil pricesIt is important not to raise them too much, as the more they rise, the greater incentive for U.S.-based producers to boost production.

Analysts expect that Russia’s OPEC+ partner Saudi Arabia will turn its attention to Russian crude oil exports if they are reduced. American companies would have to drill additional wells in order to increase their oil production. The Middle Eastern nation has the capacity to export more oil than the United States.

Kilduff claimed that there will be a surprise surge in U.S. production because companies have started to drill wells which were not yet completed.

Analysts believe it is the U.S.’s incremental production and non-OPEC countries like Brazil that has kept oil prices stable. Even if Ukraine tensions ease, U.S. oil producers may be under scrutiny.

Pickering Energy Partners’ chief investment officer Dan Pickering stated that while U.S. oil production is increasing, companies in the United States are not drilling at full speed due to shareholder pressure. Under scrutiny by ESG, companies have been paying down their debts, increasing dividends, and trying to lower carbon emissions. [environmental, social, governance] investors.

Pickering noted that the rise in rig counts, although small, is significant. It’s an indication that oil prices remain high. “That small marginal on the margin could represent a convergence of several things,” he stated. You don’t need to be adding activity in a mad rush right now. There are men out there in the Permian doing meetings right now. There is not much going on, although it is bustling. We’ve seen frenzies. Midland feels great. It’s not frenetic.

He believes that if the drilling industry moves to expand, then the results will be visible over the next one year. Not in the immediate future. He did note that Exxon MobilIt stated that it will increase its Permian Basin production by 25% in Texas this year. ChevronIt plans to increase its production there by 10%.

Let’s suppose Russia doesn’t invade. Let’s suppose oil rises $82. It’s still an impressive number. “When there is no external influence and the prices are still high, this will be the true reinvigoration.” he stated. “Unless pushed hard, these guys won’t be able to move forward with much speed.

Pickering stated that oil futures indicate oil prices will hover around $68 per barrel five years hence, which is a fair but not exceptional price as $90.

So the industry now has more energy. You should also remember that they nearly died in 2020. Many of them actually died, and some went bankrupt,” he stated. The situation is improving. The people don’t believe it so much. And if a geopolitical crisis causes an increase in oil prices, this will just reinforce the tight market. This is the type of thing that increases the confidence of the industry, even though they may not react immediately to it.

IHS says that private firms have increased production and account for approximately 20% of the volume increase, however, this year it will rise to 50%.

Kilduff stated that Devon EnergyThe company released Tuesday’s earnings report, revealing that it had reported higher production than anticipated. It is yet another indication of industry growth. Earnings expectations were exceeded by the company, and it also kept its eyes on its shareholders, increasing its dividend. Devon stock shares rose more than 6 percent on Wednesday

Kilduff stated, “After taking these businesses to the woodshed for the last couple of years, all of the sudden the economics make sense once again and that’s getting their back to old habits.”

— CNBC’s Pippa Stevens contributed to this story.